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Friday, April 10, 2009

Ilargi: Though I'm starting to think that I’m either wrong or my memory is warped by Alzheimer's, alcohol intake or both, I'm still pretty sure that during his campaign, then-presidential candidate Barack Obama promised the nation a transparent government. Eleven weeks and change into his presidency, does anyone still have the idea that he's making good on his promise? And of course it's not just about being somewhat more open than W., transparency is transparency, all by itself, not something that comes in degrees. We all realize that some things will need to remain hidden for reasons of national security, just as we all realize that W. found it mighty convenient to use the national security issue as a reason to hide ever more. At least W. was more or less open about that. Is Obama's administration even more transparent than W.'s was?

What exactly do we know about what the trillions of dollars in Obama plans are being spent on? We have to find out from third parties that $165 million were paid in AIG bonuses, and only after they became public knowledge did the government come out with barely convincing lines of innocence. The administration never said a word about the tens of billions of AIG bail-out funds being slushed through to Wall Street banks. We found out about them through other channels as well. All in all, I personally get the strong impression that successes are heavily exaggerated, while failures are being hushed into a silent corner. Unfortunately, successes are far and few between.

The attitude of the media doesn't help. Publications like the Washington Post and New York Times, which still have the resources to engage in serious reporting and truth-digging, are abject failures when it comes to holding the president and his entourage accountable neither for how they live up to what was said during the campaign, nor, and I think that's the most crucial point, for what the trillions of dollars in public money are used for. And in my view, that's just plain terribly wrong. Politicians have 1) access to public coffers and 2) the tendency to spent that public money far too freely. In times of plenty, that is sort of all right, or at least it will be very hard to get people to pay attention. In times of diminishing riches, and especially when governments spend even more of those same public funds in alleged attempts, real or not, to rescue the economy, they are taking from their people what they know very well the people are very likely to need, sooner rather than later.

And if and when, in that situation, the government does not open up as much as it can, it fails. We presently see the tendency that was current under W., that is, to hide policies and their consequences with some vague appeal to security reasons. But those policies are financed with money provided by tax revenues incurred from people who often already have a hard time paying those taxes, At the very least, that money had better be very well spent. Is it? We don't know, because they refuse to tell us. It's all 'trust me', 'believe in me'. Well, that's not enough.

Elizabeth Warren and her congressional TARP watchdog team announced a while ago that about 25% of what had been spent under the program had been completely wasted, handed out to people and projects that did nothing to further any of its goals. Now, we know that there is a number out there for total committed bail-out funds of about $12.8 trillion. Yes, much of it is loans, not gifts, yada yada, but it's still there. That number is close to the US GDP for a whole year. It's also over $40.000 for every single American citizen, $10.000 or more of which we can expect to go to waste, and it means that every single American citizen has a right to know what happens with that money. Do they, can they? No. The Obama government does a stress test at the 19 biggest banks in the country, and forbids everyone involved to talk about the results. The people are banned from knowing what state the banks are in that they trust with their savings and other funds.

The only thing we're allowed to hear, through big fat leak Larry Summers, is that all 19 passed the test. The administration will tell the people whose money keeps those banks alive what is what at a point in time of their choice, not the people's. The reasons behind the order seem obvious. Between now and when results are published, they will be cut and pasted to fit a model that pleases Washington and Wall Street. Some banks may be pushed over the edge, while others will receive extra funding through one channel or another.

The one thing we know for sure is that we will never know for sure what is real and what is fabricated. The US under Obama is just as much of a hologram, as Joe Bageant calls it, as it was under W.. Any differences are superficial and essentially meaningless.

The U.S. Federal Reserve has told Goldman Sachs Group Inc., Citigroup Inc. and other banks to keep mum on the results of "stress tests" that will gauge their ability to weather the recession, people familiar with the matter said. The Fed wants to ensure that the report cards don’t leak during earnings conference calls scheduled for this month. Such a scenario might push stock prices lower for banks perceived as weak and interfere with the government’s plan to release the results in an orderly fashion later this month. "If you allow banks to talk about it, people are just going to assume that the ones that don’t comment about it failed," said Paul Miller, an analyst at FBR Capital Markets in Arlington, Virginia.

Regulators are using the tests to determine whether the 19 biggest banks have enough capital to cover loan losses during the next two years if the economy shrinks, unemployment surges and housing prices keep declining. The tests are a linchpin of the plan Treasury Secretary Timothy Geithner announced in February to bolster confidence in the nation’s banks and restore financial-market stability. Geithner has likened the stress tests to those used by doctors to evaluate a patient’s health. They’re designed to mesh with the administration’s effort to remove distressed mortgage assets from banks’ balance sheets. The Fed is overseeing the administration of the tests, people briefed on the matter say.

President Barack Obama is scheduled to get a progress report on the tests today during a meeting with his economic team. Geithner will attend, along with Federal Reserve Chairman Ben S. Bernanke and Sheila Bair, chairman of the Federal Deposit Insurance Corp. Goldman Sachs plans to report first-quarter earnings April 14, followed by JPMorgan Chase & Co. on April 16. Citigroup reports April 17, and Morgan Stanley announces April 21. All four banks are based in New York. "No matter what the result, the stress tests are going to move markets," Camden Fine, president of the Independent Community Bankers of America, said in an interview yesterday.

"That’s the tricky part. If they don’t give out enough information or the information is presented in the wrong way, that could cause markets to plunge." Banks should stay silent because a focus on the tests would be "a harmful distraction" from earnings, said Scott Talbott, senior vice president for government affairs at the Financial Services Roundtable in Washington. "It is premature for banks to talk about the stress tests," Talbott said yesterday. "They aren’t finalized yet and there is no framework to evaluate the results." Wells Fargo & Co. Chief Financial Officer Howard Atkins declined to discuss the tests yesterday after his bank reported a record first-quarter profit that beat the most optimistic Wall Street estimates.

"We haven’t commented on regulatory matters and we won’t start now," Atkins said in an interview. "We don’t comment on the process." In a separate interview later, Wells Fargo spokeswoman Julia Tunis Bernard declined to say whether the bank had been told by regulators to keep silent. "We don’t comment on our discussions and conversations with regulators and officials," she said. Under the Treasury’s plan, banks would have six months after the reviews to raise any new capital they might need. If the money isn’t obtained from private investors, the government will provide the funds from the $700 billion bank-rescue plan.

Declaring "good news" in the midst of an economic meltdown, President Barack Obama on Thursday urged families to take advantage of near-record low mortgage rates by refinancing their home loans. "We are at a time where people can really take advantage of this," Obama said, seated with a handful of homeowners who have already lowered their bills. But he also warned people to watch out for scam artists, cautioning, "If somebody is asking you for money up front before they help you with your refinancing, it's probably a scam." Rates on 30-year mortgages inched upward this week but remain near the lowest level in decades, allowing borrowers with strong credit and stable jobs to save money if they refinance.

The average rate on a 30-year fixed-rate mortgage rose to 4.87 percent this week, up from 4.78 percent last week, Freddie Mac reported Thursday. That was the lowest in the history of the survey, which dates back to 1971. Low rates have sparked a surge in refinancing activity, with nearly 80 percent of new home loan applications coming from borrowers seeking to refinance. Freddie Mac's sibling company, Fannie Mae, refinanced $77 billion in loans last month, nearly double February's volume. "The main message we want to send today is there are 7 to 9 million people across the country who right now could be taking advantage of lower mortgage rates," Obama said in a photo opportunity in the Roosevelt Room. "That is money in their pocket."

Foreclosures and defaults continue to break records. A record 5.4 million American homeowners with a mortgage, or nearly 12 percent, were at least one month late or in foreclosure at the end of last year. And nearly half of homeowners with a risky subprime adjustable-rate mortgage were in trouble. Last month, the Obama administration launched a new plan to provide $75 billion in incentives for the mortgage industry to modify loans to help borrowers avoid foreclosure. On Thursday, the president encouraged people to take advantage of a government Web site — http://www.makinghomeaffordable.gov — to see how they can get help. In recent weeks nearly 200,000 homeowners have contacted Bank of America to find out if they are eligible to refinance under the Obama administration's new guidelines, said Vijay Lala, the bank's product management executive. "We've seen a tremendous amount of interest."

So far, we've laid the Obama administration's decision to keep propping up failed banks at Tim Geithner's feet. Geithner's boss, meanwhile, has so far avoided blame. We wonder how long that will last.

First, it was the administration's ongoing insistence (via Geithner) that this is a liquidity crisis, not a credit crisis--the Wall Street view.

Then it was the failure to do anything more than express "anger" at the AIG bonuses.

Then it was Geithner's plan to, yet again, bail out banks at taxpayer expense.

Then it was the administration's decision to force GM into bankruptcy, fire its CEO, and hit its bondholders--setting up a bizarre double-standard with Wall Street.

Then it was a "stress test" for banks in which the baseline scenario has already been eclipsed by the deterioration of the economy--once again slamming the administration's credibility

Then it was the revelation that Larry Summers made $5+ million from Wall Street last year, which added to the perception that he, Geithner, Rahm Emmanuel, etc. are reluctant to bite the hands that feed them.

Now it is the leaked announcement that "all banks have passed the stress test!", combined with a refusal to share the results of that stress test on a bank-by-bank basis.

Obama has never explained why he's acting so out of character here, so we have to speculate. The charitable explanation is that Tim Geithner is paralyzed by fear of triggering another post-Lehman credit meltdown and has convinced Obama that that's what will happen if the government holds banks and their bondholders accountable or just comes clean about the shape that banks are in. As we've said, we disagree with this No one is arguing for the sort of uncontrolled bankruptcy that Lehman went through. And the seizure, restructuring, and sale of a few major institutions should not be unmanageable, especially if the bondholders are required to pick up the tab.

The more disturbing explanation, meanwhile, is that the Obama administration really is in Wall Street's hip pocket. Jonathan Weil at Bloomberg thinks there's a chance this is the case. And Obama certainly isn't doing anything to discourage this. By maintaining a double-standard and refusing to address the elephant in the room, Obama is risking his credibility and his reputation for telling it like it is. This behavior, both toward the banks and toward Americans, is a disturbing echo of the Bush administration. It's time for Obama to address it head on.

Ilargi: Dean Baker noticed what I did yesterday, the preposterous Bernanke cheerleading in the Washington Post. But it's not the reporter, Mr. Baker, it's the White House PR team that's responsible. And they're doing the same with Geithner. There'll be more of this in the next few days.

The Washington Post gave a glowingly positive account of Ben Bernanke's efforts to deal with the economic crisis. Missing from this discussion was any mention of the fact that he deserves a large part of the blame for this crisis. Bernanke was a persistent and vigorous bubble denier, first in his capacity as a member of the Board of Governors and then on his becoming Fed chair in January of 2006. Even as the bubble began to unwind in the winter of 2007 he gave assurances that the problems would be contained in the subprime market. After he engineered the takeover of Bear Stearns in March of 2008, Bernanke told Congress that he did not see another Bear Stearns out there. Needless to say, he was surprised by the collapse of Lehman and the market's response six months later.

It might have been worth including some acknowledgment of the fact that, in addition to being the person trying to lead us out of this crisis, Bernanke was also one of the people who deserves the most blame for leading us into the crisis. The media have a tendency to write glowing accounts of people in positions of power in the United States. I recall when a person I knew quite well was given a high position, the news reports described this person as being brilliant and having a sharp intellect. I personally liked and respected this person, but I doubt very much that anyone who knew this person would have made a point of talking about their brilliance or sharp intellect. Unfortunately, reporters often seem to believe that it is their job to promote confidence in the people in power. It isn't.

President Obama yesterday announced plans to buy 17,600 American-made, fuel-efficient cars and hybrids for the government fleet, the White House's latest gambit to steer aid to the nation's beleaguered automakers. The move came in a week when the administration accelerated efforts to revive an industry suffering it lowest sales in decades. Earlier this week Obama dispatched a team of 15 finance experts to Detroit to work with General Motors and Chrysler on restructuring efforts. On Wednesday, the Treasury Department began to release $5 billion in aid to parts suppliers. And yesterday Ed Montgomery, the president's new adviser on auto communities and workers, visited Ohio to discuss what assistance might be needed there. By June 1, the government plans to spend $285 million in stimulus funds to buy fuel-efficient vehicles from General Motors, Ford and Chrysler. The purchase is slated to include 2,500 hybrid sedans, the largest one-time purchase of hybrid vehicles to date for the federal fleet.

"This is only a first step, but I will continue to ensure that we are working to support the American auto industry during this difficult period of restructuring," Obama said in a statement. Each vehicle must have a better fuel economy rating than the one it replaces. The government aims to boost the new fleet's overall fuel efficiency at least 10 percent. The new cars are intended to reduce the government's gasoline consumption by 1.3 million gallons a year and prevent 26 million pounds of carbon-dioxide from entering the atmosphere, the administration said. The General Services Administration, which is buying the cars, will also pledge $15 billion to test advanced technology vehicles, such as compressed natural gas buses and all-electric vehicles, in the federal fleet. These orders will be placed by Sept. 30.

"We look forward to showing him the many GM vehicles we have that will fit this purpose," GM spokesman Kerry Christopher said. Industry-wide, car companies expect to sell less than 10 million cars and trucks this year, the lowest level in more than two decades. Consumers are avoiding showrooms, and major rental car companies have cut back on fleet purchases as businesses and vacationers cut back on travel. In the first quarter, 271 U.S. auto dealers went out of business, according to the National Automobile Dealers Association. The association estimates that about 1,200 dealers -- primarily sellers of domestic brands -- will close their doors this year. Although Obama's purchases will give U.S. automakers some needed sales, it won't bring the industry back up to the boom years when Americans bought around 16 million vehicles annually.

"On the big scale, no, that's not going to change anyone's bottom line," said George Augustaitis, an analyst for CSM Worldwide. But it is symbolic. "This is a welcome and important step that reflects the president's commitment to the survival and revitalization of the domestic auto industry," Rep. Sander M. Levin (D-Mich.) said in a statement. The administration has already loaned GM and Chrysler a combined $17.4 billion, and has offered more if the companies can cut debt and reduce labor costs. It continues to work to increase the flow of credit to potential car buyers and dealers. The president has also pledged to work with Congress to pass a "cash-for-clunkers" bill, which would offer cash incentives to people who trade in their older, fuel-inefficient cars for cleaner models.

During his campaign, Obama spoke of his desire to convert the White House fleet to battery-powered vehicles within the year, as security permitted, and by 2012 he said he wanted half of the cars the federal government buys to be plug-in hybrids or electric. Meanwhile, Cleveland Mayor Frank G. Jackson met with Montgomery yesterday and emphasized his desire that local businesses that benefit from government help reinvest in the Cleveland economy. "Those dollars turn around the economy multiple times and help support small- and medium-size businesses that are on the brink," he said. Montgomery promised he would bring that message to Washington. "He understands, he understands," Jackson said.

Given that it is nearly Easter, investors are on a search for a good rebirth story — and Wells Fargo seemed to provide one when it told investors today to expect a $3 billion profit for the quarter. That would be new record for the bank. The surprising news sent the Dow soaring up 3% to nearly 8000. The earnings expectations are great news for a bank and nation beaten down by mortgage woes for two years, and they look like a vindication of Wells Fargo’s strategy in buying Wachovia, which apparently boosted the bank’s market share. But those higher profits won’t help Wells Fargo dig out of a much deeper pit of concerns about its regulatory capital, government stress tests, and weighty Wachovia mortgage loans, all of which still loom over its future.

Wells Fargo’s future may look brighter because of this boost, but it is wise to adopt a wait-and-see attitude: as several analysts pointed out today, the bank’s earnings numbers are not the same as its earnings quality. Wells Fargo’s profit boost came, somewhat surprisingly, from a perceived recovery in the mortgage market. As our colleagues reported today, "The bank reported $100 billion in mortgage originations during the quarter, providing loans to more than 450,000 people either purchasing or refinancing a home. Wells Fargo mortgage applications rose 41% to $190 billion, with $100 billion yet to close at the end of the quarter." That $100 billion in mortgage originations is important because many analysts had only expected Wells Fargo to fund around $86 billion in mortgages during the quarter.

The question of how Wells Fargo blew through estimates by such a significant margin remains an open question to be solved on the bank’s quarterly conference call with analysts, scheduled for Wed., April 22. (One thing is for sure: the extra profit certainly didn’t come from Wells Fargo’s forced cancellation of a 12-night Las Vegas junket.) Wells Fargo’s problems are not solved, and analysts and investors will comb other measures of the bank’s health, including its rate of non-performing mortgage loans and its accounting treatment of mortgage loans it wants to sell. No one is declaring victory yet; Richard Ramsden of Goldman Sachs noted today, "several critical pieces of information were missing, including asset quality and securities exposure."

FBR Capital Markets analyst Paul Miller indicated unease with Wells’ surprisingly positive earnings: "While the market is reacting favorably to the [earnings per share] beat and the stronger tangible common equity ratio, we remain cautious based on what we don’t know. Most importantly, what happened to nonperforming loans and what would have been net charge-offs excluding purchase accounting adjustments? What are the trends in WFC’s Option ARM portfolio? Did the company write up the MSR and what was the new capitalized cost of servicing? Was there any benefit from an increase in level 3 assets given recent accounting guidance?" Betsy Graseck of Morgan Stanley noted in a research report today that there is still a debate over Wells Fargo’s capital. "Investors are concerned about how WFC will fare in the stress test given its residential mortgage concentration. We do not bake in a capital raise but would not be surprised if WFC proactively raised capital to take this issue off the table."

Ramsden of Goldman Sachs noted that Wells Fargo is still thoroughly under the government’s thumb unless it can pull off another rich stock offering. "On capital, Wells Fargo expects [tangible common equity] ratio to improve to above 3.1% in 1Q. This is clearly a positive although we would note that Tier 1 ratio excluding TARP is still likely to be around 6%, which would make it hard for Wells Fargo to disentangle from the government without a capital raise." Wells Fargo joined a clutch of banks who declared their intention to pay back TARP capital quickly: Goldman Sachs, J.P. Morgan, PNC Financial Services, U.S. Bancorp and others have all sworn to throw off the yoke of government control as soon as possible.

Wells Fargo is not as well-positioned to pay back TARP capital as those banks, however. Wells’ key ratio of tangible common equity to tangible assets — a measure of a bank’s capital strength — is only 2.38, the lowest ratio of any of the big banks that have publicly committed to paying back TARP funds. By comparison, Goldman Sachs has a TCE/TA ratio of 4.86 and J.P. Morgan’s is 3.91, according to SNL Financial data. Given recent regulatory changes and the pressure on banks to send out some good news, caution is the order of the day until it becomes clear how Wells Fargo reached those sky-high new numbers. Miller concluded: "We believe that credit quality materially deteriorated in the first quarter and that Wells Fargo is under-reserving for expected future losses."

The stock market stormed up Thursday on good earnings news from the bank sector, but there was bad news on another front that could undermine the surge. The second round of the Federal Reserve's attempt to restart the nonbank consumer-lending market, the so-called TALF program, went even worse than the faltering first round did last month. The poor performance is causing some Fed officials to doubt the entire premise of the effort to restart nonbank credit markets. "We know there are people out there interested in putting subscriptions together," says a Fed official, "but the larger question is, Where is the market [for them]?"

The New York Federal Reserve says the second round of TALF lending amounts to just two issues for $1.7 billion in loans, divided roughly equally between auto and credit cards. The $1.7 billion is well below the $4.7 billion in loans from last month. Fed officials say they will return after the holiday weekend to try and get a sense of why the subscription was so light. The TALF program (Term Asset-Backed Securities Loan Facility), funded with up to $200 billion, was created to provide liquidity to the market for securitized nonbank consumer loans. The prospective buyers of such securities would be hedge funds and investment firms.

There are three possible reasons for the shortfall in demand. First, there have been disagreements over terms between some of the dealers who are packaging consumer loans and the investors they want to sell them to. The New York Fed has engaged both sides in several of these disputes and believes it can resolve the problems, says the Fed official. The second potential reason for the TALF shortfall is fear of retroactive penalties from Washington. "There's nervousness about the possibility of retroactive action by Congress," says a government official. The last possibility may be the most worrying — that there has been a fundamental shift in the appetite for nonbank securitized loans, which previously represented some 40% of U.S. consumer lending.

"The Fed and Treasury have said we're prepared to lend up to $200 billion for small business, auto, student and other kinds of loans, but what is the market for them?" says the Fed official. "You still have to figure out what the demand is at this point, because of the state of the economy and whether people are comfortable doing these [securitized nonbank loans]." A dramatic drop in demand could be either very good or very bad for traditional banks. It could mean that the nonbank, or "shadow bank," system is less appealing to borrowers than traditional banks in uncertain times, and so they are going to regular banks for loans instead. Or more ominously, it could mean there is an overall dramatic drop in borrowing, which would hurt everybody.

The defining moments of our financial crisis are now familiar. Last September, Lehman collapsed and AIG was teetering. Because an AIG collapse was viewed as posing unacceptable systemic risks, the Federal Reserve provided the company with an emergency $85 billion loan on Sept. 16. But a curious incident that fateful day raises significant public policy issues. Goldman Sachs reported that its exposure to AIG was "not material." Yet on March 15 of this year, AIG disclosed that it paid $7 billion of its government loan last fall to satisfy obligations to Goldman. A "not material" statement and a $7 billion payout appear to be at odds.

Why didn't Goldman bark that September day? One explanation is that Goldman was, to use a term that I coined a few years ago, largely an "empty creditor" of AIG. More generally, the empty-creditor phenomenon helps explain otherwise-puzzling creditor behavior toward troubled debtors. Addressing the phenomenon can help us cope with its impact on individual debtors and the overall financial system. What is an empty creditor? Consider that debt ownership conveys a package of economic rights (to receive principal and interest), contractual control rights (to enforce the terms of the agreement), and other legal rights (to participate in bankruptcy proceedings). Traditionally, law and business practice assume these components are bundled together. Another foundational assumption: Creditors generally want to keep solvent firms out of bankruptcy and to maximize their value.

These assumptions can no longer be relied on. Credit default swaps and other products now permit a creditor to avoid any actual exposure to financial risk from a shaky debt -- while still maintaining his formal contractual control rights to enforce the terms of the debt agreement, and his legal rights under bankruptcy and other laws. Thus the "empty creditor": someone (or institution) who may have the contractual control but, by simultaneously holding credit default swaps, little or no economic exposure if the debt goes bad. Indeed, if a creditor holds enough credit default swaps, he may simultaneously have control rights and incentives to cause the debtor firm's value to fall. And if bankruptcy occurs, the empty creditor may undermine proper reorganization, especially if his interests (or non-interests) are not fully disclosed to the bankruptcy court.

Goldman Sachs was apparently an empty creditor of AIG. On March 20, David Viniar, Goldman's chief financial officer, indicated that the company had bought credit default swaps from "large financial institutions" that would pay off if AIG defaulted on its debt. A Bloomberg News story on that day quotes Mr. Viniar as saying that "[n]et-net I would think we had a gain over time" with respect to the credit default swap contracts. Goldman asserted its contractual rights to require AIG to provide collateral on transactions between the two, notwithstanding the impact of such collateral calls on AIG. This behavior was understandable: Goldman had responsibilities to its own shareholders and, in Mr. Viniar's words, was "fully protected and didn't have to take a loss."

Nothing in the law prevents any creditor from decoupling his actual economic exposure from his debt. And I do not suggest any inappropriate behavior on the part of Goldman or any other party from such "debt decoupling." But none of the existing regulatory efforts involving credit derivatives are directed at the empty-creditor issue. Empty creditors have weaker incentives to cooperate with troubled corporations to avoid collapse and, if collapse occurs, can cause substantive and disclosure complexities in bankruptcy. An initial, incremental, and low-cost step lies in the area of a real-time informational clearinghouse for credit default swaps and other over-the-counter (OTC) derivatives transactions and other crucial derivatives-related information.

Creditors are not generally required to disclose the "emptiness" of their status, or how they achieved it. More generally, OTC derivatives contracts are individually negotiated and not required to be disclosed to any regulator, much less to the public generally. No one regulator, nor the capital markets generally, know on a real-time basis the entity-specific exposures, the ultimate resting places of the credit, market, and other risks associated with OTC derivatives. With such a clearinghouse, the interconnectedness of market participants' exposures would have been clearer, governmental decisions about bailing out Lehman and AIG would have been better informed, and the market's disciplining forces could have played larger roles. Most important, a clearinghouse could have helped financial institutions to avoid misunderstanding their own products, and modeling and risk assessment systems -- misunderstandings that contributed to the global economic crisis.

Sumitomo Mitsui Financial Group was a hot potatoes Friday, as investors raced to unload shares of the smallest of Japan's big three megabanks after it said it would hold a massive share sale that would dilute its share value by nearly a third. Sell orders outnumbered buy orders to such an extent that the stock did not move for much of the morning session, with the stock eventually closing down 14%. The retreat spread to Japan's other two megalenders, which are set to post results soon, as investors lost faith that the relatively conservative Japanese banking system will be a global stalwart amid the financial slump.

SMFG plans to issue up to 800 billion yen ($8.0 billion) worth of new shares that would dilute current shareholders by 30%, according to a filing to the Tokyo exchange late Thursday. It also said it will slash its dividend by 25%, to 90 yen (90 cents) a share. SMFG posted a surprise $3.9 billion loss for the fiscal year ended March, whereas analysts had expected a profit. It suffered 760 billion yen ($7.6 billion) in losses on mounting bad loans as bankruptcies piled up to a six-year high amid Japan's worst recession since World War II. Last year's bargain shopping spree on Wall Street after the financial meltdown also dealt a big blow to SMFG's balance sheet. The bank said its estimated write-down on its stake in Barclays is 53.2 billion yen ($530.2 million). SMFG invested 500 million pounds (then worth $997 million) in July for a 2% stake in Barclays, whose shares have roughly halved in value since then.

For Western banks, their bane in the current financial crisis was mortgage-backed securities. For the Japanese megabanks, one of their main sources of pain continues to be equity holdings. SMFG said it booked 220 billion yen ($2.2 billion) in stock losses. Due to the entrenched practice of buying stock in clients and partners, banks and other companies suffered major losses on their equity portfolios as Tokyo's stock market posted a broad decline. The benchmark Nikkei 225 average fell 35% during the fiscal year. To help companies out of the cross-shareholding pit, Japan's central bank has offered to buy back up to 1 trillion yen ($10.0 billion) worth of shares, but that is a pittance compared with the megabanks' massive holdings. Mizuho Financial Group has said it will cut its cross-shareholdings by a fifth, or 600 billion yen ($6.0 billion).

Rivals Mitsubishi UFJ and Mizuho Financial Group are suffering similar problems to those of SMFG, and they also took billion-dollar stakes in Morgan Stanley and Merrill Lynch, now part of Bank of America, respectively. Anticipation has heightened that they will need to conduct further capital-raising, diluting the value of existing shareholders. Fitch Ratings warned Thursday it may cut its ratings on Mizuho, SMFG and Mitsubishi UFJ Financial Group, citing pressure on the banks' asset quality and capital levels. "Core business profitability continue to be negatively impacted by the macroeconomic recession to which the major banks, by their size, have a high correlation," Fitch said in a statement. To help them shore up their capital bases, the Bank of Japan said Friday it would offer commercial banks with overseas operations up to 350 billion yen ($3.5 billion) each in subordinated loans. The total lending will be capped at 1 trillion yen ($100 billion).

Japanese are getting more than their money’s worth from Taro Aso’s recent visit to London. Trips by prime ministers to meetings like last week’s Group of 20 one are normally complete junkets. There’s rarely much to show for all those government bureaucrats flying business class, staying at five-star hotels and soaking up the local culture. It seems Aso got a bit of religion from his chats in London with U.S. President Barack Obama, U.K. Prime Minister Gordon Brown and 17 other leaders. Aso’s new stimulus package, amounting to 15.4 trillion yen ($153 billion), is proof enough of that. Two key points are worth noting here. One, Japan will now spend a total of 25 trillion yen, so it’s finally getting serious about taming the recession. Not serious enough, yet this is notable progress. Two, Asia’s spending efforts are putting an even greater onus on European nations reluctant to do more.

To economists such as Glenn Maguire of Societe Generale SA in Hong Kong, this is a "do-or-die" moment for the world’s second-biggest economy. Japan has been among the hardest-hit developed nations because of a heavy reliance on exports. Aso’s two previous packages failed to excite markets or consumers. This one may do just that. "I’m not convinced it is enough, but it is a big package and a good start," says Richard Jerram, chief Japan economist at Macquarie Securities Ltd. in Tokyo. The important word here is "start." Last year’s popular argument that Japan was a haven from global turmoil died a quick death. The ruling Liberal Democratic Party’s latest package amounts to about 3 percent of gross domestic product. Put together with Aso’s previous two, Japan will be spending about 5 percent of GDP -- a ratio comparable to U.S. stimulus plans. Rather than spreading out the spending over three years, as with previous plans, Japan’s latest will occur in one year. If implemented competently, these steps could stabilize the domestic economy and stop the bleeding in labor markets. Recent data showed business sentiment plunged to a record low and suggested unemployment will rise markedly.

Japan’s bond vigilantes aren’t happy, of course. Yields surged to their highest level since November as traders brace for as much as 11 trillion yen of bonds to fund the spending. Japan is doing the right thing, though. Its already poor fiscal position will worsen, yet that’s more tolerable in the short-to- medium term than another extended bout of deflation. More spending will be needed. At the end of April, more than 2,000 Japanese companies will begin to report earnings for the 12 months through March 31 and provide targets for the current year. The state of the global economy, coupled with a strong yen during the past year, will make for sober reading. The question is how much more spending Japan will need. The amount could be considerable thanks to the liquidity trap in which the Bank of Japan finds itself. Jerram, for example, says the BOJ would need to get its 0.1 percent benchmark rate into the minus 4 percent to minus 5 percent range to stabilize growth. In a credit crisis, fiscal policy must lead the charge.

It’s quite a contrast with Europe. In London, German Chancellor Angela Merkel was pressured to spend more to attack the country’s worst recession in more than 60 years. Finance Minister Peer Steinbrueck argues Germany doesn’t need a third stimulus package after spending 82 billion euros ($110 billion) in the previous two rounds. France and other European economies haven’t spent as much as many economists would like. The European Central Bank, meanwhile, is already looking ahead to inflation pressures that may coincide with a global recovery. Last week, it cut its benchmark interest rate to a record low of 1.25 percent. It’s an open question whether the ECB is too hawkish as global growth slows -- just as it’s unclear whether the Federal Reserve has cut rates too much. As 2009 unfolds, Europe may have a difficult time resisting more drastic action.

Asian economies have dropped their resistance. China’s 4 trillion yuan ($585 billion) stimulus package is an example. Granted, it’s easier for the U.S., Japan or developing Asia to boost spending. Many in Europe are subject to the Growth and Stability Pact, which calls for budget deficits to be within the limit of 3 percent of GDP. If global growth gets worse, though, Europe may have little choice but to loosen fiscal policy along with the U.S. and Asia. Markets responded well to reports of Japan’s package. The Nikkei 225 Stock Average’s erased its loss on the year, rising 2.5 percent this week. The index is up 1.18 percent on the year after reaching a 26-year low on March 10. Sustaining that optimism will require even bigger government steps. How many and how much is impossible to say. What we can conclude is that Japan’s leaders are finally realizing the depth of the economy’s challenges, and that’s good news for Asia.

Lending by Japanese banks grew at a slower pace for the third straight month as companies were able to sell more commercial paper to raise funds and falling confidence among manufacturers crimped demand for loans. Loans, excluding those by credit associations, rose 3.6 percent from a year earlier in March after climbing 3.8 percent in the prior month, the Bank of Japan said today. Lending by so-called city banks, including Mitsubishi UFJ Financial Group Inc., rose 3 percent after climbing 3.2 percent in February. Japan’s economy is headed for its worst recession in six decades as a record decline in exports forces companies to cut back on investments, squeezing borrowing demand. The Bank of Japan’s decision to buy commercial paper from companies has also helped them access funding in the market, central bank governor Masaaki Shirakawa told reporters this month. "The commercial paper market is recovering -- not for the whole market, but for highly rated companies," Michio Kitahara, associate director-general of the central bank’s surveillance department, said at a briefing in Tokyo today.

Regional banks expanded lending 4.3 percent in March, compared with 4.5 percent the previous month. The nation’s loan growth rate topped 4 percent in December for the first time since 1992 as investors shunned bonds and commercial paper. Investors have become more willing to buy bonds of highly rated Japanese companies since January, UBS AG said in a report this week. "A positive interpretation of this is improving capital markets," said Richard Jerram, chief economist at Macquarie Securities Ltd. in Tokyo. The Bank of Japan’s Tankan survey on April 2 showed confidence among large manufactures slid in March to its lowest since the quarterly survey began in 1974. It also showed big companies plan to cut investment by 6.6 percent in the fiscal year started April 1, after exports plunged 49.4 percent in February.

Prime Minister Taro Aso is planning his third economic stimulus package, which may total 15.4 trillion yen, according to a document received by Bloomberg. The nation’s largest lenders, including Mitsubishi UFJ and Mizuho Financial Group Inc., have cut profit forecasts as losses on stock investments and rising bad loans eroded profits. Sumitomo Mitsui Financial Group Inc., the second-largest lender by market value, said yesterday it posted a 390 billion yen loss for the 12 months ended March 31. The financial regulator said last month it will inspect Japan’s largest banks to make sure they continue lending even as losses make it more difficult. Masaaki Shirakawa told reporters this month.

China's exports and imports fell in March from year-earlier levels for the fifth month in a row, the official Xinhua news agency said, citing the customs administration. The pace of decline in exports slowed, but the rate of decline in imports accelerated, sending out mixed signals as to whether the worst of the contraction in trade flows may soon be over.

'The trade figures are in line with our expectations largely due to an improvement in trade financing in the international market.

'China's exports are likely to be on a mildly declining trend in future. I think the slowdown will continue at least for the next three to six months, and the possibility of a sharp drop in any one particular month cannot be fully ruled out.'

LIU NENGHUA, ANALYST WITH BANK OF COMMUNICATIONS IN SHANGHAI:

'Exports fell less sharply. However, I personally think that's only temporary they will slide further in the next several months.

'The current crisis started in the financial sector. But I don't see any fundamental improvement in the banking sector, despite governments' measures to bail them out.

'Banks still hold huge toxic assets and will face fund-raising challenges in the future. The credit crunch will then negatively affect consumption and investment again.

'It's hard to predict the bottom for China's exports right now. But overall, the measures rolled out by various countries will help their economies to bottom out sooner.

'For China, we cannot rule out the possibility of additional stimulus measures. But we still need to watch other figures to be released next week.

'I tend to believe in the necessity for further measures, mainly on the consumption side, such as a cut in individual income tax as well as steps to stabilise the property market and improve China's medical insurance services.'

ZHOU XI, ANALYST WITH BOHAI SECURITIES IN TIANJIN:

'The figures show signs of improvement from February, but it is still too early to say that the worst is over for China's trade sector.

'Exports in coming months will depend on the economic situation overseas, mainly the United States, and it is still possible that trade will worsen.

'The overall economy is improving, which shows that the government's policies are having an impact. New fiscal stimulus looks increasingly unnecessary.'

KEN PENG, ECONOMIST WITH CITIGROUP IN SHANGHAI:

'The improvement in exports suggests that what we saw last month was fairly temporary, but I still think these types of large year-on-year declines in exports could continue given that U.S. imports are still in very negative territory.'

On the accelerated decline in imports:

'I think that reflects still fairly weak domestic demand. As more stimulus affects the economy, the import declines should slow.

'Put the two together, and even though we're getting a better trade surplus, it will still be relatively small compared to last year.'

On policy implications of the better export figures:

'We've got a series of fairly bullish numbers. We've had just explosive credit growth, we've had the PMI numbers coming in much stronger than expected, and now the export number is also getting better.

'Going forward, markets should not expect more incremental positive policy announcements unless we have a renewed round of weakness.'

BACKGROUND:

The slump in exports and imports, which has been mirrored across Asia, underscores the dramatic downturn in the economy due to the global credit crunch, which has sapped Western consumer demand and played havoc with trade finance.

Beijing has pledged to provide more policy support for its trade sector, and Minister of Commerce Chen Deming has said China must seize the opportunity of Western countries' current economic malaise to grab more global market share.

To support exporters, China has raised value added tax rebates on exports several times since the end of July, covering products such as textiles, furniture, toys, rubber and metals.

To give exporters breathing room, the central bank has also effectively halted the yuan's rise against the dollar since July.

Officials estimate 23 million migrant workers have lost their jobs because of the closure of thousands of export-oriented factories, especially those in China's manufacturing heartlands near Hong Kong.

When Clarence Athy lost his job laying concrete just before Thanksgiving, the 56-year-old single father did what most people do: He applied to collect unemployment benefits. But like many Americans, Athy was denied. Athy, of Kalispell, Mont., was told by state workers that he was not at his job long enough to collect benefits. He has applied for jobs all over town — where the unemployment rate is in the double digits — without any luck. Now, he's trying to do what he can to feed himself and his son, Calvin, 15, and keep a roof over their heads. He is behind on his rent, has turned off his telephone and next week may lose his electricity. "I ought to get something," Athy says of unemployment benefits. "It's not like I'm not trying to get work. … I'm just trying to make a living."

Millions of unemployed Americans who have lost their jobs are in Athy's shoes. While 13.2 million people were unemployed in March, approximately 5.8 million were collecting unemployment benefits at the end of the month, double the number from a year ago, the government said Thursday. That means less than half of those who were out of work and were actively trying to find a new job were receiving unemployment benefits. "There are so many gaps," says Monica Halas, lead attorney at Greater Boston Legal Services, which provides free legal aid to low-income people. "People think (if) they are unemployed, they are going to get unemployment. Not true."

There are a number of reasons people are ineligible for unemployment benefits. Policies vary widely by state: The proportion of unemployed people who were collecting benefits in 2008 ranged from 18% in South Dakota to 61% in Idaho, according to the National Employment Law Project. Often, those who worked part time or who were not at their job for very long before being laid off are not eligible. That tends to disproportionately include women, low-income workers and people with more seasonal jobs, such as construction, according to the NELP. A 2007 report from the Government Accountability Office found low-wage workers were about one-third as likely to collect unemployment benefits as those earning more. People who are fired for performance issues, who quit or who were self-employed are immediately tossed out.

There are no plans to expand the safety net to those in the latter category. But Congress, as part of the stimulus bill passed this year, included $7 billion to states that change their laws to make more employees who lose their jobs because of the bad economy eligible for benefits. Money for the unemployment insurance program, which began in 1935, comes from taxes paid by employers. Workers themselves do not pay into the unemployment insurance system. Nineteen states qualified to receive all or part of their funds based on existing policy. One was Maine, which has been providing benefits to a wider pool of workers, including part-timers and those who left jobs because of concerns about domestic abuse or because a spouse was relocating, according to the NELP. Other states that have been more generous with benefits include Rhode Island, Washington and Massachusetts.

Policymakers in New Jersey and South Dakota have recently changed laws and received money from the stimulus pot, while others have legislation working their way through state capitals. This week, the Labor Department approved funds for Connecticut based on that state's policy of allowing employees with shorter work histories to collect unemployment. But lawmakers in other states have not acted, and those in at least one have actually shot down the money. Wednesday, the Republican-controlled Virginia House of Representatives, largely along party lines, rejected a measure to expand the pool of workers eligible for unemployment benefits, 46-53. Some Republican governors, including those in Texas, Louisiana, South Carolina, Mississippi and Alabama, have spoken out against expanding unemployment benefits, arguing that eventually the federal government funds will run out, and the states will be left with a bigger cost for their unemployment insurance programs with a larger number of people on the rolls.

Katherine Cesinger, a spokeswoman for Texas Gov. Rick Perry, said expanding the unemployment system would require raising taxes on businesses, thus "hurting our job-creation climate." Perry's "ultimate goal is to make sure there are jobs out there, so that when this economic climate turns, folks can get back to work," Cesinger said. Still, those backing expansion of benefits point out that there have been successes. "We have had more victories than we have had defeats," NELP deputy director Andrew Stettner says. The NELP estimates more than 500,000 additional people would be eligible to collect unemployment benefits if all the states take the needed legislative steps to collect the funds. Labor Secretary Hilda Solis says she has personally been calling governors and state lawmakers to press them to quickly pass the laws to make them eligible to collect the federal money.

"It's going to be a little tough, but overall, people are interested," Solis said, expressing confidence states will take action. State governments would "be leaving money on the table if they did not follow through, and that is a very bad idea in these tough economic times," says Kristin Rowe-Finkbeiner, executive director of MomsRising.org, an advocacy group of mothers. The group is conducting a letter-writing campaign urging state lawmakers to expand benefits. Any changes in law likely would only help people who lose their jobs going forward, not those who are already unemployed. Such action would be too late for David Bowman, 53, of Avondale, Ariz. On Dec. 31, Bowman lost his part-time job doing sales and marketing at a friend's plumbing wholesale business. He started the job in August after he had to stop driving a truck because he had a defibrillator inserted due to heart trouble. That meant Bowman neither had a long enough work history before he was laid off nor was he working full time, both conditions for collecting unemployment in Arizona.

Bowman said he's been applying for jobs every day, but hasn't gotten an interview in more than a month. He gets a pension from the Army, but it's not enough to make ends meet, he says. He's depleted savings, lost his home in foreclosure, is behind on his rent and has filed for bankruptcy. "I'm right now almost dead in the water," he says, noting he considers himself better off than many people because he has health benefits from the military. But he wishes he could collect unemployment. "That kind of stings me a little bit," he says. Some people who are eligible are also running out of benefits before finding work. Benefits have been expanded in a number of states, but with the unemployment rate the highest in more than a quarter-century, workers are taking longer to find jobs, at times exhausting their eligibility. The NELP predicts more than 1.3 million people will run out of unemployment benefits during the first half of the year.

In March, the average length of unemployment was 20.1 weeks, up four weeks from a year earlier. Nearly 3.2 million had been jobless for at least 27 weeks, vs. 1.3 million a year earlier. Legal aid groups are also reporting an increase in the number of employers contesting a former worker's claim for unemployment benefits. Because a company's future tax liability for the unemployment program is based on how many former employees have collected, it is in a firm's best interest to limit the number of those drawing benefits. Andrew Scherer, executive director of Legal Services NYC, a non-profit group that provides free legal assistance in New York City, says his organization is seeing "explosive growth" in contested unemployment insurance cases as employers claim workers were fired because of performance. "We are seeing more overblown reaction to what otherwise might have been a minor infraction of work rules," he said.

When claims are contested, unemployment checks are delayed. That can lead to a number of issues, including possible eviction as families get behind on their rent and mortgage payments. That can put a strain on family relationships. Scherer says his organization is seeing an increase in domestic violence cases. "Any delay is tragic for people," says Greater Boston Legal Services' Halas. "It has really serious effects in this down economy where you can't turn around and get another job." Economists say providing money to people who are unemployed can have a broader impact on the economy. "If you can provide some kind of income support for them, then it might generate more spending in the economy," Forward Capital chief economist Richard Moody says.

Because the unemployment insurance system is funded by companies, those who are self-employed are likely to continue to be left out. Dale Prost, 58, says he thinks there should be some help for out-of-work, self-employed people such as himself. "I don't think it's fair, because I pay taxes," he says. For 10 years, he worked as a self-employed manufacturing worker, most recently supporting a transmission assembly launch at a General Motors powertrain plant. He has not had work since December 2007, the month the economy slid into recession. Prost, of Commerce Township, Mich., said he has applied for numerous jobs, including those paying minimum wage, but for every job, there are hundreds of people applying. He and his wife are living off her salary as an office manager for a doctor, but it does not provide medical benefits. They are negotiating with their mortgage company to reduce the interest rate and lower monthly payments on their home. "We're sitting on eggshells, because we don't know what is going to happen," he says. "We are barely holding on. I don't think I've ever had this much stress."

More than three-quarters of Americans would rather General Motors Corp. and Chrysler LLC be forced into bankruptcy before taxpayers lend them more money, according to a CNN/Opinion Research polled released today. Of 1,000 people questioned from April 3-5, 76% said they preferred the automakers go through bankruptcy, while 22% said they would support additional government loans. The remaining 2% apparently had no opinion. The survey also didn’t clarify whether respondents’ opposition to additional loans included the $16.6 billion in additional money the government has offered to lend them if they meet certain criteria by May 1 in the case of Chrysler and June 1 for GM.

Despite President Barack Obama’s pledge to guarantee the warranties on new Chrysler and GM vehicles if they do file for bankruptcy, 27% told CNN callers they were "not likely at all" to buy a car from a company in bankruptcy. Nearly one in four, 24%, said they would be "very likely" to buy from a bankrupt automaker. Only 37% said they thought bankruptcy for either company would cause major problems for the broader U.S. economy, down from 51% when the same question was asked in December. Slight more, 44%, said an auto bankruptcy would only cause minor economic problems.

Many U.S. taxpayers are eagerly anticipating a quick influx of cash from their states as they file income tax returns ahead of the April 15 deadline, but for some, the refund check may not be in the mail. With most states struggling with big revenue decreases due to the economic recession, taxpayers anxious to bolster their own deflated finances may find the wait for refund checks is longer this year. In Missouri this week, the state reported that gross tax collections fell by 4.3 percent in the third quarter of fiscal 2009 compared to the same period in fiscal 2008. "We can't send refunds out if we don't have the money," said Ted Farnen, a spokesman for the Missouri Department of Revenue.

Josh Barro, staff economist at the Tax Foundation, a nonpartisan tax research group in Washington, D.C., said refund delays were unusual but not unprecedented. He added that while refund delays popped up in only a few states so far this year, continuing revenue shortfalls could lead others to resort to this "band-aid" tactic. "This doesn't solve a budget crisis, but it gives you a little float," Barro said. North Carolina, facing a $2 billion deficit in its current budget, is about four weeks behind where it would normally be in sending out refund checks, according to Kenneth Lay, the state's revenue secretary. "We're managing the distribution of checks very carefully," he said.

Lay added while the state hopes to catch up by mid-May, there was understandable anxiety on the part of taxpayers who need their refunds due to the sour economic conditions. "We're telling people 'You'll get your refund check, it's just taking a little longer this year,'" Lay said. In Missouri, budget cuts that sliced the revenue department's temporary tax-time staff to 127 from 300 were also contributing to delays, particularly for filers of hard-copy tax returns versus electronic filers, according to Farnen. The average size of individual refunds is up about 6.5 percent so far this year to $404 from $379 in 2008, he said, adding that all taxpayers will eventually get their refunds.

California State Controller John Chiang last month began releasing payments, including tax refunds, he had withheld during the state's more than 100-day stalemate in the legislature over a state budget. He had withheld the payments to bolster the state's cash account, which had been in danger of running dry without an agreement to balance the budget. Taxpayers in Kansas faced the threat of delayed refund payments earlier this year as Democratic Governor Kathleen Sebelius and the Republican-controlled legislature sparred over patching a hole in the current state budget. An agreement on spending cuts and fund transfers was reached in February.

America's public sector pensions have been a scandal for years. It wasn't that long ago that they finally got around to doing their accounting the way that normal pensions do: by showing how likely their assets were to generate enough revenue to pay for future benefits. When they did, we found out what critics had long been claiming: many pension funds for state and local governments were disastrously underfunded. Politicians had gotten into the habit of promising generous pensions as a "cheap" giveaway to powerful unions.

With the holes laid bare, public pension funds scrambled to find some way to fill them without making politicians do something ridiculous, like raise taxes to pay for all the promises they'd made. Many of them seem to have hit on the notion of pulling the money out of boring old bonds and putting them in something that paid a nice, high return--not just equities, but hedge funds and exotic securities. Since the public pension funds were rarely able to pay top dollar for financial wizards, and had a number of political constraints on both membership of the boards, and the investments they made, you can just about imagine what they look like now. But if you can't, the FT lays it out:

In the past year the funds, whose collective $2,000bn-plus in assets make them key investors in every asset class, have lost about 40 per cent of their value through investment losses.

The 2,600 pension plans provide retirement savings for 22m public employees in towns and cities across the US, and range in size from the giant Calpers, with $120bn (€91bn, £81bn) in assets, to tiny small town funds which pay pensions for local garbage collectors and police. Phillip Silitschanu, a senior analyst at Aite Group, a consultancy, says the pensions "could face a cash flow collapse, they are liquidating assets to meet their monthly cash flow needs instead of selling positions that are down 10 per cent, they are being forced to liquidate positions down 40 per cent. It is a firesale liquidation of assets to have the cash on hand to meet obligations".

Bill Atwood, the executive director of the Illinois State Board of Investments, says: "Right now it's very bad. For the full year 2009 (ending in June) we will have $270m negative cash flow on $8.5bn in assets." State pension benefits are protected by law, and must be paid even if the fund is making a loss. Calpers, the largest fund, has lost $70bn in value in the past eight months, but still has to pay $11bn in benefits this year. Unless the fund starts recouping its losses soon, the California state government, which is already mired in a huge deficit, will have to lift contributions to Calpers starting from next year.

This is not, it should be emphasized, exclusively a problem of public sector pensions; private firms are also underfunded. But the scale is vastly different. According to the Pension Benefit Guaranty Corporation, which regulates and insures pensions, the total deficit in private plans covering about 34 million workers was a little over 10 billion as of September 2008. That's almost certainly multiplied quite a bit since then. But the current underfunding in public plans, which cover about 22 million workers, seems to be something north of a trillion dollars. And they're not insured.

The funds that are responsible are a different sort of headache; they'll be slapping heavy levies on local school districts and governments to shore up their capital. That will be a nasty burden on strapped local governments, particularly in places that are already in decline. My mother's hometown in Western New York now sees its local fiscal picture vary heavily with the financial industry 350 miles away because of teacher pensions. In good years, the market booms, tax revenue soars, and not only does their mandatory pension contribution fall, but the state often offers extra help out of the tax windfall. In bad years, the state aid disappears, their mandatory contribution goes up, and the senior citizens on fixed incomes start assembling pitchforks and torches for the march on city hall.

If that's not enough to worry you, keep an eye on Social Security. The trustee's report is due out in a few weeks, and I can virtually guarantee that the estimated date when the "trust fund" will be exhausted will move at least a year closer. In bad times, tax revenues fall, and age discrimination means that older displaced workers are prone to apply for early benefits rather than looking for another job--especially if their 401(k) has kind of evaporated. The release of the annual report used to feature a festival of complaining from bloggers that the Social Security Trustees were far, far too conservative in their estimates of future growth. I don't think we'll be hearing that this year.

Update:The PBGC emails

Actually, the PBGC was reporting on the shortfall in its own insurance program.The private sector pension plans insured by the PBGC are in reality underfunded by hundreds of billions of dollars.A recent Milliman study for instance shows the shortfall among the largest 100 corporate pension plans to be $217 billion.Calculated on a termination basis (that is assuming the pension plans were ending today) the underfunding number is much higher. So while the two systems (public and private pensions) are vastly dissimilar (one with taxpayers as guarantors of last resort, the other with the PBGC backstop), neither currently has assets sufficient to keep its benefit promises.

The problem in the public funds is still bigger, but not as much bigger as I'd initially thought--which makes sense, since a bunch of funds, like the airlines, have been chronically underfunded since the 2000 stock market crash. It's hard for any entity to keep promises made forty years in the future.

Ilargi: A very educational video. It might be a good idea to try and find out what your town is invested in. There is an estimates $2.7 trillion in outstanding municipal debt in the US. Lewisburg, Tennessee is but one of many municipalities that have become engaged in some form or another of derivatives. In this case, it concenrs municipal bond interest rate swaps.

The real-estate industry is lobbying the Federal Reserve for modifications to a bailout program that the industry said may avert a wave of commercial-property defaults. Real-estate owners and investors who have talked to the Fed predict the central bank will begin offering some five-year loans under the government's Term Asset-Backed Securities Loan Facility, or TALF. That is longer than the three-year loans being offered. While it may be a small change, the length of loans is a critical matter to the Fed, which prefers to make short-term loans. Longer-dated loans could make it more difficult for the Fed to fight inflation, as the bank can't pull back the money injected into the economy.

Real-estate investors, however, said the longer-term debt is critical to saving the commercial real-estate business, which faces a record amount of debt coming due in the next three years. Industry observers are expecting the delinquency rate to double by the end of this year and go higher next year. Problems could be magnified if the credit drought continues and owners of even healthy properties are unable to refinance. Fed officials declined to comment on details, and some people familiar with the talks said that no decisions have been made yet. Industry executives are hopeful that the Fed will announce the program modification and other details by the end of the month. The Treasury Department also has said that the Fed is working to ensure that the duration of the TALF loans "take into account the duration of the underlying assets."

TALF makes low-cost loans available to investors who buy securities backing everything from credit cards to auto loans. Anticipating that TALF will be modified, a number of investment firms, including BlackRock Inc., Prudential Financial Inc. and ING Groep NV unit ING Clarion Partners LLC, are positioning themselves to use the TALF program to buy high-quality commercial mortgage-backed securities, or CMBS. Some of them aim to raise billions of dollars for that purpose. Commercial-property debt is expected to be one of the most attractive TALF-eligible assets, because it is collateralized by office buildings, malls, warehouses and other income-producing real estate. It is perceived as less risky than consumer credit such as credit-card debt and car loans.

"We're gearing up to raise funds" to tap into the leverage offered by TALF to buy highly rated CMBS bonds, said Steve Switzky, a managing director and portfolio manager at BlackRock. Industry executives hope that the TALF effort will resurrect the CMBS market. In 2007, about $230 billion of securities were sold. That number dropped to zero by last summer. The dearth of financing has frozen sales and sent values plummeting, setting the stage for another wave of defaults that could cripple some banks and other lenders. The first TALF-eligible deals, involving securitized car loans and credit-card cash flows, began in March, but investor response to the program has been anemic. Investors applied for just $1.71 billion in loans on Tuesday in the second round of TALF, according to the central bank. That follows applications for $4.71 billion last month.

Obama administration officials have been promising for weeks that the TALF would be expanded to include commercial real estate. But details have been sketchy and have been a subject of debate between policy makers and the private sector. "We're continuing working with market participants," said a New York Fed spokeswoman, who declined to comment on any specifics. The $700 billion market for existing CMBS, which is as big as the markets for securitized auto loans, credit cards and student loans combined, has rallied in the past two weeks on hopes for TALF. Yields on the highest-quality CMBS bonds have fallen to 12% from 14% one month ago, according to Trepp LLC, which tracks the commercial-property debt market. Bringing down the yields on existing debt is critical to spark new lending, said market participants, because investors can buy top-rated CMBS bonds that offer yields close to that of junk bonds. Those higher yields crowd out the market for new issues.

"With triple-A CMBS currently yielding as much as 15%, this doesn't bode well for property values," said Jim Higgins, chief executive officer at Sorin Capital Management, a Stamford, Conn., hedge-fund firm that is interested in participating in the TALF program. Policy makers believe it is critical to get credit flowing to the $6.5 trillion real-estate industry. Defaults likely would rise if borrowers were unable to refinance loans as they become due. But commercial real estate also has presented a conundrum for the Fed, because most real-estate loans are made for more than five years. Fed officials are hesitant to getting locked into long-term obligations. Earlier this year, the Fed reluctantly stretched the TALF's duration to three years from one. The possibility of extending it further has made some regulators uneasy.

But in meetings and phone calls with New York Fed officials, who are leading the TALF effort, commercial real-estate executives and CMBS investors have pressed them to extend the program's term. "TALF is going to be the first step in freeing up the liquidity and breaking the logjam" in the commercial real-estate debt market, said Gayle P. Starr, head of capital markets at AMB Property Corp., one of the nation's largest owners of industrial properties.

The white notice taped to the front window of a luxury home in the Vasaro subdivision is a telltale sign. "Bank-owned," says real estate agent John Groves, without skipping a beat. There are other clues. Dirt where a lush lawn should be. Vacant lots on either side. And the sale price: $729,900 for a never-lived-in, 5,500-square-foot, five-bedroom, 3.5-bath custom home that about a year ago was listed for more than $1.2 million. In a nearby subdivision of this community of 246,000, one of the largest suburbs in metropolitan Phoenix, a foreclosure sign in the front yard of a more modest house signals yet another financially troubled home needing a buyer.

Multiply that scenario hundreds of thousands of times. From Maine to Hawaii, millions of new McMansions, post-World War II bungalows, modern downtown lofts, exurban town homes and inner-city row houses sit empty. This unprecedented glut of vacant homes — one in nine homes across the USA, according to the Census Bureau — will change the real estate landscape for years. Already, rock-bottom prices in the hardest-hit markets are attracting first-time home buyers who could not afford a home during boom times. Some areas may see real estate values stabilize by the end of this year, as buyers seeking bargains begin to reduce the backlog of homes for sale. At the same time, the availability of rental housing will widen, potentially pushing down the cost of renting.

"We overproduced by 1 million new units," says Edward Glaeser, economist at Harvard University. "Now we have to work our way through the stock." What happens to the 14 million empty houses, condominiums and apartments and the 9.4 million that are for sale? How long will it take to absorb this massive and unprecedented oversupply of housing? "Two more years," Glaeser says. His is one of the more optimistic estimates. Projections by housing analysts range from as early as this year in some areas to as late as 2014 in others. "From a pure need for shelter, we don't need more homes built for the next several years," says John Burns, head of John Burns Real Estate Consulting in Irvine, Calif., who believes the recovery might take five years in some areas. "We clearly overbuilt."

The nation's housing stock increased by 8.65 million units from 2002 to 2007 — a time when the number of households in the USA increased by only 6.7 million. Even after taking into account the need to replace homes torn down or lost to fire and other disasters, there is an excess of 1.3 million units, not including vacation homes. The nation adds about 1.5 million households every year, but that number is shrinking. The recession, delayed marriage and a slowdown in immigration all have reduced the demand for more housing. The bad economy forces many young people to live at home longer if they're single. Sharing a home with friends or relatives may be the only affordable option for many who can't keep up with house payments.

"When you have an economic crisis, you can move in with Mom and Dad, take in roommates or move to Mexico, but I don't think there's much household formation," Burns says. "The highest rate of increase in homeownership (typically) is in ages 30-44, and there are fewer of them," says William Lucy, professor of urban and environmental planning at the University of Virginia. "Those are the likely childbearing years." Since 2004, the number of households in that age group has dropped by 1.6 million. The overall U.S. population, however, is still expected to grow by almost 100 million, to 400 million, by 2040 because of strong fertility rates and continued immigration. That will fuel demand for more housing. Today, homes are still being built — about 700,000 this year, says Arthur C. Nelson, director of the University of Utah's Metropolitan Research Center.

The U.S. will need all this housing at some point, says Robert Lang, head of the Metropolitan Institute at Virginia Tech. "Population is still growing, and sooner or later, you'll want to move out of relatives' basements." Burns fears that some working-class subdivisions on the far edge of metropolitan areas will turn into "exurban ghettos" as prices drop and many units are turned over to renters. The Department of Housing and Urban Development is doling out $731 million to 48 states to buy and rehabilitate vacant, foreclosed homes and help low- to moderate-income families buy them. Susan Wynalek, 53, hasn't witnessed the consequences of the real estate collapse firsthand — only on the news. She doesn't see foreclosure signs or many "For Sale" signs in Freehold, N.J., the affluent town in the far reaches of the New York suburbs, where she lives.

"We bought our house 3? years ago, and I imagine on paper we're losing money," she says. "But we're staying put." Just as the housing crisis has hit some areas more brutally than others, the recovery will reach some before others. "The geography of this is important," says Lucy, who has analyzed foreclosures. More than half of foreclosures last year were filed in just 35 counties across 12 states. After analyzing government housing data and estimates and projections by Woods & Poole Economics, an independent economic forecaster, Nelson predicts that housing markets in the West and South — regions hardest hit by foreclosures — will start to bounce back later this year and the first half of 2010. The Northeast and Midwest will have the slowest comeback — possibly beyond 2012, he says.

Nelson adds a cautionary note: "Keep in mind that 'recovery' does not mean 'happy days are here again' " but "that there is sufficient pent-up demand for new housing as to warrant new construction." Prices won't bounce back much, at least initially. When the recovery begins, homes will be selling at the lowest prices this decade, Nelson says. There's an upside to the nation's housing glut, fed by the crush of foreclosures: Housing gets more affordable. More than 2.3 million homes went into foreclosure last year. There were 290,000 filings in February alone, up 6% from January. The number of homes for sale in 2007 soared to 10 million but inched back to 9.4 million in 2008, as construction of new homes slowed and prices sank, Lucy says. That's still almost 40% higher than 10 years earlier, when fewer than 7 million homes were for sale.

Sales of existing homes rose 5.1% to 4.72 million from January to February — the largest sales jump since July 2003, the National Association of Realtors reports. The surprising increase was driven by buyers taking advantage of big discounts on foreclosed homes. The median sale price was $165,400, down 15.5% from a year earlier and down 28% from their peak in July 2006. First-time home buyers who could not break into the housing market in the boom years are prime buyers now that prices are at or near bottom and mortgage interest rates are below 5%. Business is soaring for Kennedy Wilson Auction Group, based in Beverly Hills. The company sold more than 1,000 homes at auction last year, a jump from the 120 to 175 homes it auctioned five years ago. The firm has conducted auctions in new luxury developments in Scottsdale, Ariz., Seattle and Southern California.

President Rhett Winchell says that 90% of his customers buy to live in the homes. The rest are investors. "The format allows first-time home buyers to buy the house of their dreams," he says. "People buying today are getting huge discounts over a year ago. … It's all about price." His company auctions the units to help developers sell them fast. A unit that would have been on the market for $500,000 sells at auction for between $350,000 and $400,000. Auctions that sell foreclosed homes — old, new, small, big, homes that banks want to get off their books — appeal to investors who are betting on a turnaround and can get rental income in the meantime. Another side effect on housing: The demand for rentals has risen since the housing market tanked. Apartments that had been converted to condominiums at the peak of the market have reverted to apartments.

When someone loses a home for failure to make the payments, "they will either most likely rent a single-family home or rent an apartment, but they're not likely to go buy another home," says Elliott Pollack, CEO of Elliott D. Pollack & Co., a real estate and economic consulting firm in Scottsdale. Tighter credit and stricter mortgage qualifications are likely to push homeownership down from the record 67% it reached this decade to about 63%, Nelson says. "Half of new housing will have to be rental," he says. Here in Maricopa County, Ariz., the number of foreclosures ranked 24th in the USA last year — not far behind areas such as Riverside, Calif., Las Vegas and Fort Myers, Fla. In Maricopa County, there were 117,000 foreclosure actions or one for every 13 households, according to real estate listing firm RealtyTrac. That's six times the number recorded in 2006.

It's not the first real-estate meltdown for Phoenix and suburbs such as Chandler. The savings-and-loan crisis in the late 1980s and early 1990s that resulted in the failure of more than 700 savings-and-loan associations hit this region hard and halted development for a while. The government formed the Resolution Trust Corporation (RTC) to liquidate real estate and mortgage loans held by the savings and loans. The S&L crisis, however, was less sweeping than the current mess, local officials and housing analysts say. It affected commercial construction and developers rather than homeowners. At the time, many large, master-planned communities already had streets, sewer and water lines and other infrastructure in place but only a half-dozen homes built. As soon as the RTC took over, developers bought the ready-made subdivisions and started putting up homes. Credit was still available through banks and other lenders.

"The S&L stuff wasn't people moving out of houses," says Jeff Kurtz, Chandler's acting planning and development director. "It was just that growth stopped." "It was nothing compared to now," former Chandler mayor Jerry Brooks says. In suburban Phoenix, however, signs of life are sprouting, says real estate agent Groves, 53. One of his clients is relocating from Southern California and wants to buy two homes, one to live in and one for investment. Another client, a local buyer, is ready to pay cash for a house he can rent and resell later. At a recent get-together with friends and colleagues, "absolutely every Realtor at the table was telling stories of how they've got more buyers than they can handle," Groves says. "It tells me that prices have reached the point where people perceive value."

A vast "shadow inventory" of foreclosed homes that banks are holding off the market could wreak havoc with the already battered real estate sector, industry observers say. Lenders nationwide are sitting on hundreds of thousands of foreclosed homes that they have not resold or listed for sale, according to numerous data sources. And foreclosures, which banks unload at fire-sale prices, are a major factor driving home values down. "We believe there are in the neighborhood of 600,000 properties nationwide that banks have repossessed but not put on the market," said Rick Sharga, vice president of RealtyTrac, which compiles nationwide statistics on foreclosures. "California probably represents 80,000 of those homes. It could be disastrous if the banks suddenly flooded the market with those distressed properties. You'd have further depreciation and carnage."

In a recent study, RealtyTrac compared its database of bank-repossessed homes to MLS listings of for-sale homes in four states, including California. It found a significant disparity - only 30 percent of the foreclosures were listed for sale in the Multiple Listing Service. The remainder is known in the industry as "shadow inventory." "There is a real danger that there is much more (foreclosure) inventory than we are measuring," said Celia Chen, director of housing economics at Moody's Economy.com in Pennsylvania. "Eventually those homes will have to be dealt with. If they're all put on the market, that will add more inventory to an already bloated market and drive down home prices even more." In the Bay Area, a Chronicle analysis of data from San Diego's MDA DataQuick shows that more than one-third of foreclosures are in shadow territory - that is, they are not registering in county records as having been resold.

For the 26 months from January 2007 through February 2009, banks repossessed 51,602 homes and condos in the nine-county Bay Area, according to DataQuick. Yet in the same period, only 30,823 foreclosures were resold, leaving about 20,000 bank repos unaccounted for. Realtors say foreclosures generally go on the market a month or two after the bank takes title and then sell fairly quickly, often getting an accepted offer within a week or two of being listed and then closing escrow within 30 days. That means that foreclosures should register as being resold within three months. But taking the foreclosures in any given month or selection of months and looking at what happened three months later also reveals a big gap between what banks took back and what they resold.

Tom Kelly, a spokesman for banking giant Chase in Chicago, said the bank sells foreclosed homes in a timely fashion. "We try not to be in the business of owning homes," he said. "Our goal is to get them back on the market as quickly as possible. We want to maximize what we sell them for and yet do it quickly." Kelly was at a loss to explain the shadow inventory phenomenon other than the quantities involved. "The inventory might be growing because there is just a lot of volume coming in. That would not surprise me," he said. Locally, the monthly number of foreclosures has decreased since peaking at 4,321 in August 2007. That has allowed foreclosure resales to start closing the gap. Most observers say the recent fall-off in foreclosures came because California and many banks implemented foreclosure moratoriums in the fall, not because the problem has diminished.

A second DataQuick study of all Bay Area homes repossessed by banks in the 18 months ending January 2009 tracked how many of those homes had resold by mid-March. It found that 65.5 percent had resold. Discovery Bay's ForeclosureRadar.com compared its database of Bay Area foreclosures to MLS listings for the past 120 days and found that fewer than one-fifth of the foreclosures showed up as for-sale listings. "Foreclosure numbers are artificially depressed," said CEO Sean O'Toole. He puts California's shadow inventory at about 100,000 homes. So why aren't banks selling off their foreclosures? Observers say several factors are at work.

The "pig in the python": Digesting all those foreclosures takes awhile. It's time-consuming to get a home vacant, clean and ready for sale. "The system is overwhelmed by the volume," Sharga said. "In a normal market, there are 160,000 (foreclosures for sale nationwide) over the course of a year. Right now, there are about 80,000 every month."

Accounting sleight-of-hand: Lenders could be deferring sales to put off having to acknowledge the actual extent of their loss. "With banks in the stress they're in, I don't think they're anxious to show losses in assets on their balance sheets," O'Toole said.

Slowing the free-fall: Banks might be strategically holding back some foreclosures so prices don't fall as fast. "They want to be careful about not releasing them too quickly so they don't drive prices down and hurt the values," O'Toole said.

Besides the shadow foreclosures, yet another wave of distressed properties is in the pipeline. These are homes with delinquent payments for which the banks appear to be prolonging the foreclosure process. Some of that could be because they're negotiating with homeowners about loan modifications or other ways to keep them in the home. But banks also could be deliberately foot-dragging for the same three reasons listed above. "The problem is that no one knows how extensive (the shadow inventory) is," said Patrick Newport, U.S. economist with the Massachusetts research firm Global Insight. "It's a wild card. If it's a really big number, you'll see prices drop a lot more and deeper problems for the financial system." Only 65.5 percent of all Bay Area homes repossessed by banks in the 18 months ended January 2009 had been resold by mid-March. This study looked at the same homes over time, not an aggregate of all foreclosures.

Only a year ago, all the stars appeared to be aligned for American farm exports. China and other developing countries were fattening up growing herds of cattle on American corn, and they were importing record amounts of foods to meet the appetite of their expanding middle classes. A drought in Australia meant a shortage of wheat on world markets. The price of dairy products soared across the globe because of shortages. Since then, all that has changed. The developing countries are slowing their food imports, it is raining again in Australia, and the price of dairy products is slumping. A strengthening dollar in recent months has made United States farm exports less competitive.

"What a difference 12 months can make," Joseph Glauber, chief economist of the Department of Agriculture, noted in Congressional testimony last week. "We have seen prices for most commodities fall 40 to 50 percent from their midyear peaks. The global economic slump has cast a pall on most markets." The department recently predicted that farm exports, which account for about 20 percent of the value of farm production, would fall this year to $96 billion, from $117 billion in 2008, roughly in line with the recent falloff of all American exports. But the decline is particularly drastic for corn and wheat, two staples of the farm economy, and government economists say the falloff could directly lead to a loss of 45,000 jobs.

The drop in farm exports has been overshadowed by other bad economic news because the United States farm economy is in relatively good shape. Land prices in farm country remain firm, prices of farm produce have declined but remain relatively strong by historical measures, and several years of strong farm prices have left farmers in good financial shape. But government and academic farm economists are worried that if the world economy does not recover over the next year or so, prices for produce and farm incomes could decline sharply and ultimately lead to a drop in farm real estate values. A recent report by the Agriculture Department said that American farm income could decline to $66 billion this year, from a record $89 billion last year. It could even decline by as much as 33 percent, to $60 billion, according to the report.

While food is one purchase Americans are still making — even if they are eating at home more and looking for bargains at lower-cost groceries — there are signs that the food and industrial demand for agricultural products is declining in developing countries like Taiwan, Malaysia, Mexico and Egypt. Shortages have suddenly turned to surplus. Wheat prices in particular have been hurt by a big improvement in farm conditions in Australia this year, as well as better yields in Morocco, India, Mexico and Bangladesh. In recent months, export volumes of rice have declined by more than 10 percent, wheat by more than 30 percent, corn by more than 40 percent and sorghum by more than 60 percent.

Harlan Klein, a wheat farmer and chairman of the North Dakota Wheat Commission, said the drop in exports was forcing him to shop more carefully for fertilizer, seeds, fuel and equipment. "We’re buying what’s used and that is not as good as you want, or running what you have years longer," he said, because exports "are what drive our market. Every other bushel we produce gets exported." Many American farmers are responding by reducing their plantings. In Oklahoma, which exports roughly two-thirds of its wheat crop, farmers are either leaving a portion of their lands fallow this year or growing wheat and rye for grazing cattle. "The profit just isn’t there," said Kim Anderson, a grain economist at Oklahoma State University, who noted that farmers were suffering from high fertilizer prices as well.

"The 2008 wheat crop was almost a once-in-a-lifetime crop, where you had above-average yields and above-average prices," he added. "And then you come into the 2009 crop with almost the exact opposite." The Agriculture Department projects that American wheat and cotton plantings will be reduced by 7 percent this year compared with those in 2008, while corn plantings will be down 1 percent. Corn farmers have a cushion because of rising federal mandates for the use of corn ethanol in gasoline. Pork, cattle and poultry production are also expected to decline, in large part because of declining exports. The effect of the slowing global economy on American farmers is compounded by the fact that lower world demand means lower prices for farm produce sold in the United States as well. The losses could add up as the year goes on, especially if the value of the dollar remains at the higher levels of recent months.

The euro traded near $1.60 a year ago but has since fallen to about $1.32. The British pound traded above $2 in late 2007 but has dropped to about $1.47. For example, the value of corn exports from October to January was down 26 percent compared with the figure in the period a year earlier while the volume declined by a steeper 41 percent. That is because the lower value of the dollar in late 2007 and strong international demand propped up corn prices on international markets. "The drop in volumes of corn exports will probably accelerate through the spring and summer months this year in comparison with 2008 because of a continued strong dollar and the weakened purchasing power of foreign currencies," said David Swenson, an economist at Iowa State University. "Most corn farmers in the Midwest are looking at a break-even year compared to fabulous returns they received in ’07 and ’08."

An Argentine opinion on the Global Financial Crisis, describing the whole Global Financial System as one vast Ponzi Scheme. Like a pyramid, it has four sides and is a predictable model. The four sides are:

Artificially control the supply of public state-issued currency currency,

Artificially impose banking money as the primary source of funding in the economy,

Promote doing everything by debt and

Erect complex channels that allow privatizing profits when the Model is in expansion mode and socialize losses when the model goes into contraction

The Pentagon sponsored a first-of-its-kind war game last month focused not on bullets and bombs — but on how hostile nations might seek to cripple the U.S. economy, a scenario made all the more real by the global financial crisis. The two-day event near Ft. Meade, Maryland, had all the earmarks of a regular war game. Participants sat along a V-shaped set of desks beneath an enormous wall of video monitors displaying economic data, according to the accounts of three participants. "It felt a little bit like Dr. Strangelove," one person who was at the previously undisclosed exercise told POLITICO. But instead of military brass plotting America’s defense, it was hedge-fund managers, professors and executives from at least one investment bank, UBS – all invited by the Pentagon to play out global scenarios that could shift the balance of power between the world’s leading economies.

Their efforts were carefully observed and recorded by uniformed military officers and members of the U.S. intelligence community. In the end, there was sobering news for the United States – the savviest economic warrior proved to be China, a growing economic power that strengthened its position the most over the course of the war-game. The United States remained the world’s largest economy but significantly degraded its standing in a series of financial skirmishes with Russia, participants said. The war game demonstrated that in post-Sept. 11 world, the Pentagon is thinking about a wide range of threats to America’s position in the world, including some that could come far from the battlefield.

And it’s hardly science fiction. China recently shook the value of the dollar in global currency markets merely by questioning whether the recession put China’s $1 trillion in U.S. government bond holdings at risk – forcing President Barack Obama to issue a hasty defense of the dollar. "This was an example of the changing nature of conflict," said Paul Bracken, a professor and expert in private equity at the Yale School of Management who attended the sessions. "The purpose of the game is not really to predict the future, but to discover the issues you need to be thinking about." Several participants said the event had been in the planning stages well before the stock market crash of September, but the real-world market calamity was on the minds of many in the room. "It loomed large over what everybody was doing," said Bracken.

"Why would the military care about global capital flows at all?" asked another person who was there. "Because as the global financial crisis plays out, there could be real world consequences, including failed states. We’ve already seen riots in the United Kingdom and the Balkans." The Office of the Secretary of Defense hosted the two-day event March 17 and 18 at the Warfare Analysis Laboratory in Laurel, MD. That facility, run by the Johns Hopkins University Applied Physics Laboratory, typically hosts military officials planning intricate combat scenarios. A spokesperson for the Applied Physics Laboratory confirmed the event, and said it was the first purely economic war game the facility has hosted. All three participants said they had been told it was the first time the Pentagon hosted a purely economic war game. A Pentagon spokesman would say only that he was not aware of the exercise.

The event was unclassified but has not been made public before. It is regarded as so sensitive that several people who participated declined to discuss the details with POLITICO. Said Steven Halliwell, managing director of a hedge fund called River Capital Management, "I’m not prepared to talk about this. I’m sorry, but I can’t talk to you." Officials at UBS also declined to comment. Participants described the event as a series of simulated global calamities, including the collapse of North Korea, Russian manipulation of natural gas prices, and increasing tension between China and Taiwan. "They wanted to see who makes loans to help out, what does each team do to get the other countries involved, and who decides to simply let the North Koreans collapse," said a participant.

There were five teams: The United States, Russia, China, East Asia and "all others." They were overseen by a "White Cell" group that functioned as referees, who decided the impact of the moves made by each team as they struggled for economic dominance. At the end of the two days, the Chinese team emerged as the victors of the overall game – largely because the Russian and American teams had made so many moves against each other that they damaged their own standing to the benefit of the Chinese. Bracken says he left the event with two important insights – first, that the United States needs an integrated approach to managing financial and what the Pentagon calls "kinetic" – or shooting – wars. For example he says, the U.S. Navy is involved in blockading Iran, and the U.S. is also conducting economic war against Iran in the form of sanctions. But he argues there isn’t enough coordination between the two efforts.

And second, Bracken says, the event left him questioning one prevailing assumption about economic warfare, that the Chinese would never dump dollars on the global market to attack the US economy because it would harm their own holdings at the same time. Bracken said the Chinese have a middle option between dumping and holding US dollars – they could sell dollars in increments, ratcheting up economic uncertainty in the United States without wiping out their own savings. "There’s a graduated spectrum of options here," Bracken said. For those who hadn’t been to a Pentagon event before, the sheer technological capacity of the Warfare Analysis Laboratory was impressive. "It was surprisingly realistic," said a participant.

Still, the event conjures images of the ultimate Hollywood take on computer strategizing: the 1983 film "War Games" in which a young computer hacker nearly triggers a nuclear apocalypse. The film and the reality had one similarity: The characters in the movie used a computer called WOPR, or War Operation Plan Response. The computer system used by the real life war-gamers? It was called WALRUS, or Warfare Analysis Laboratory Registration and User Website.

Ireland will take commercial-property assets off the books of six of its biggest lenders and house them in a new state agency, a plan it hopes will restore international confidence in the nation's financial system. If necessary, the state will take majority stakes in Ireland's two main banks. Irish Finance Minister Brian Lenihan said Wednesday that all land and development loans of Ireland's major banks will be housed in the new National Asset Management Agency. On Tuesday, the government announced plans to establish the agency, removing from the banks loans with a book value of €80 billion ($106 billion) to €90 billion. The move makes Ireland the first nation in the euro zone to use an industrywide, government-sponsored "bad bank" to remove toxic assets from the banking system. The assets will include both healthy and impaired loans, ranging from undeveloped land to residential and commercial developments.

Governments have generally balked at the bad-bank approach because of the difficulty of putting a value on hard-to-sell assets.The U.K. has opted instead to insure some £600 billion ($884 billion) in banks' assets against losses. Ireland was also among the first governments to step in and shore up its banks. In October, it announced a plan to guarantee for two years €440 billion in deposits held by six financial institutions. The assets to be transferred to the NAMA will come from those institutions: Allied Irish Banks PLC , Bank of Ireland PLC, Irish Life & Permanent PLC, Irish Nationwide Building Society, EBS Building Society and the recently nationalized Anglo Irish Bank Corp.

"There will be a significant discount from that figure," Mr. Lenihan said, referring to the assets' aggregate book value of up to €90 billion. "Our first step is to value these assets." He said there will be "tough negotiations" with the banks in relation to the valuation of the assets housed by the new agency. Mr. Lenihan said that he already has a "reasonable assessment" of the bad loans in both Bank of Ireland and Allied Irish Banks. "The NAMA will play a crucial role in managing these assets," he added. The agency will purchase the assets by issuing government bonds to the banks. That will result in a "very significant increase" in gross national debt, which will be offset by the assets the government acquires, the government said.

Separately Wednesday, Mr. Lenihan said that if further big losses were to materialize, the government would consider taking majority stakes in Allied Irish Banks and Bank of Ireland, but emphasized that such a development wasn't inevitable. The government has already taken a 25% stake in Bank of Ireland after injecting €3.5 billion into it and is in the process of recapitalizing Allied Irish Banks by the same amount. Moody's downgraded 12 Irish banks, citing the continued deterioration in the outlook for commercial real-estate prices, the likelihood of more corporate defaults and erosion in residential loan performance. Bank share prices plummeted, but the cost of insuring senior debt issued by Irish banks against default fell considerably on the news they would be freed of toxic assets under the government's bad-bank plan.

Turkey and the International Monetary Fund have agreed in principle on the conditions of a new loan deal worth up to $45 billion to help the country weather the global crisis, newpapers reported on Friday. Pressure for an accord has mounted as the economy slumped in recent months, putting it on course for deep recession. Gross domestic product tumbled 6.2 percent in the fourth quarter and industrial production slid by a quarter in February. The reports, citing Economy Minister Mehmet Simsek, said the deal would meet Turkey's external financing needs. Business daily Referans reported Simsek as telling reporters he hoped to have the deal approved by the IMF in two to three weeks.

Newspaper Radikal reported that the deal could be worth as much as $45 billion and would be signed for a three-year term. Other newspapers quoted different amounts. The initial size of the deal was seen at $20 billion, analysts said. Simsek was quoted as saying that Prime Minister Tayyip Erdogan and IMF Managing Director Dominique Strauss-Kahn have agreed in principle to the foundations of a deal. "We've agreed to a set of principles, within that framework our hope is to finish the work (on the deal) on Turkey's side before its spring meetings," Simsek was quoted saying, referring to the next IMF meeting in about two weeks' time. A Turkish Treasury official declined to comment, as did another official at the Prime Minister's office. The lira, which has gained in recent sessions on expectations of a deal, was trading at 1.5620 against the dollar in early trade, firming from the previous day's close of 1.5690. Traders said expectations of an imminent IMF deal had already been largely priced in. Turkey's main share index firmed 0.43 percent higher to 28,637 points.

One of the key principles of the prospective new deal was to avoid new measures aimed at raising new revenues to compensate for cuts in special consumption and value-added taxes, newspapers said. The two sides also agreed to restrict spending or set a limit for the budget deficit. "This is very positive and diminishes the investment risks associated with Turkey. Therefore investors should not focus on the absolute loan size because that is irrelevant. All in all positive expectations still prevail in the market," said Tera Stockbrokers in a note. Talks with the IMF on a stand-by deal were suspended in January due to disagreements over issues such as unregistered income, government spending and tax administration. Turkey's previous $10 billion loan deal with the fund expired last May. The worsening slump, fuelled by the global financial crisis, reflected a slide in domestic demand and a sharp decline in exports, reinforcing analysts' expectations that the central bank will continue cutting interest rates in a bid to revive growth.

China will hit back if the United States chooses to investigate a complaint that China is dumping steel pipes in the U.S. market, the China Daily quoted a senior industry official as saying on Friday. Seven U.S. steelmakers have complained to U.S. trade bodies that China has flooded the U.S. market with steel pipes, with exports rising from 900,000 tonnes to 2.2 million tonnes last year, worth an estimated $2.7 billion. The official, from the China Chamber of Commerce of Metals, Minerals and Chemicals Importers and Exporters, said China's steel industry associations would "take up cudgels on behalf of producers" if the U.S. government launched a probe into the case, the newspaper reported. The official, identified only by the surname Chen, said trading enterprises as well as manufacturers could be affected if the U.S. government imposed punitive duties on certain Chinese steel products.

Commerce Ministry spokesman Yao Jian said later on Friday that Beijing was paying close attention to the case. The current difficulties of the U.S. steel industry were the result of the slowdown in demand brought about by the financial crisis and should not be blamed on importers, Yao said in a statement on the ministry's website. "Looking for trade protection cannot solve the true problems faced by American industry," Yao said, adding that China hoped the U.S. administration would "resist protectionism and avoid sending the wrong message to the rest of the world". The complaint by the U.S. steelmakers and the United Steelworkers union centres on welded and stainless steel pipes known as oil country tubular goods (OCTG), which are used in oil and gas drilling. The petitioners include U.S. Steel Corp, Evraz Rocky Mountain Steel Mills and TMK IPSCO. Despite the world economic slowdown, Chinese steelmakers are producing at a faster rate than last year, spurred on by a $585 billion government stimulus plan and hopes of China's economy picking up speed again in the second half of this year.

The steelmakers' complaint to the U.S. Department of Commerce and the U.S. International Trade Commission said Chinese producers of OCTG benefited from government subsidies and dumping margins of 40-90 percent, threatening the livelihoods of about 6,000 U.S. OCTG workers. The U.S. steelmakers' statement said the U.S. International Trade Commission would make a preliminary injury determination no later than May 26 and the Department of Commerce would issue a preliminary subsidy finding by Sept. 8 and a preliminary dumping finding by Nov. 6. It also said Chinese OCTG pipe was subject to very high anti-dumping duties in Canada and that the European Union, which imported over 600,000 tonnes in 2008, made a preliminary dumping determination of margins of 35-51 percent on Chinese seamless pipe on Wednesday, which could divert more to the U.S. market.

Anyone catch Steven Kopits’ article in Barron’s this weekend titled “A Global Portrait of Peak Oil”? In it, Kopits echoes thoughts I have written recently on how badly the US is being outmaneuvered by China with respect to energy policy. While US politicians and policymakers continue to hold meetings in Washington, DC in an attempt to solve a commodity problem (oil) with financial tom-foolery (it simply will not work), let’s look at what China has been up to:

China lent money to Russian oil companies Rosneft ($15 billion) and Transneft ($10 billion) in return for oil supplies and a new pipeline spur to China. For China, the agreement locks up 15 million tons of oil (300,000 bpd) every year for the next 20 years.

China and Venezuela have signed agreements and invested in a $12 billion fund to finance and develop oil projects, infrastructure and agriculture with a goal to boost Venezuelan oil exports to China from 330,000 bpd to 1 million bpd by 2015.

In each case, Chinese President Jintao met in person with the leaders of Russia, Brazil, and Venezuela to underscore the strategic significance of these deals.What a contrast to the United States’ “strategy”. Brazil’s President Lula is often vilified on CNBC as being a “socialist and former lathe operator” (the tools on CNBC apparently dislike anyone who actually produces something tangible). With respect to Russia, the US supports a puppet on Russia’s Georgian underbelly and threatens to place a “missile shield” on Russia’s border. No foreign leader in the world has been as vilified in the US press like Venezuelan President Hugo Chavez.

Now, one could argue the reasons and merits behind these US foreign policy initiatives and US media reporting. That said, it cannot be argued which policy has been more successful in locking up future oil supplies: China is winning. For a country that imports 65% of its oil, this is certainly bad news for the future of the United States. The US government uses money it doesn’t have to reward financial fraudsters with huge bonuses while China uses money it does have to buy oil. You tell me – which country is thinking logically and strategically about the future? Despite US oil inventories at near 20-year highs and an economic contraction that can at best be described as “serious”, oil was recently trading over $50/barrel. Why?

Well, unlike the American people and US politicians and policymakers, oil traders have not forgotten the supply/demand fundamentals that led to $145/barrel oil prices last year. Total US crude oil inventories in March (excluding the SPR) amounted to 359,427,000 barrels (EIA). US consumption is currently running a little less than 20,000,000 bpd. So, as impressive as these large inventories are oil traders are well aware that they amount to a mere 20 days of US supply. At the same time, geopolitical risks have not disappeared and even a whisper of positive economic data causes oil prices to rise rapidly.

The onset of a summer driving season in which economically stressed Americans will be trading in their European vacations and world travel plans for trips in the family car could rapidly eat into US gasoline stocks. Does any rational person actually believe that low oil prices are anything but a temporary short term reaction to the extreme energy demand destruction caused by the current economic turmoil?

I have written so often about peak oil realities and my support for the natural gas transportation solution most of my SeekingAlpha followers must surely be convinced I am OCD. Guilty as charged. In my defense, I simply can’t find anything more important to write about! Until American policymakers address peak oil and our foreign oil addiction with rational policy initiatives, I probably won’t stop. Peak oil is the biggest threat to the American economy, our democracy, and ultimately the freedom of its citizens.

I was reading an article by Seeking Alpha contributor John Peterson wherein he unveiled his “family reunion test” to evaluate cleantech investments. He boils his analysis down to a simple question: “How many of the people who attended our last family reunion is likely to buy this product or service at today’s price”? I grinned when reading this - it is very similar to my stress test with respect to proposed energy policy solutions to solve America’s peak oil crisis: “Will this policy allow me to pull my small Teardrop trailer to Colorado every summer for the rest of my life so that I can travel up and down the mountains and fly fish for trout in my favorite wilderness area waters”?

While America’s energy crisis cannot rely on any single solution, natural gas transportation consistently passes my stress test while most other proposals fail to do so. Does this indicate a bad stress test or a bad policy? You decide.

Rather than regurgitate the facts and statistics of peak oil, today I want to discuss the lack of an American energy policy. I was extremely critical of the Bush administration’s lack of a comprehensive energy policy and strongly supported Obama for President. To his credit, Obama has made some important changes in both tone and action by increasing support and funding for wind, solar and electric grid infrastructures. However, with respect to the vital issue of reducing foreign oil imports, Obama has been an extreme disappointment. He seldom misses an opportunity to mention “clean coal”. This is an oxymoron. Simply mining the coal degrades the environment. Burning coal emits twice the CO2 of natural gas. More importantly, coal’s particulate emissions are very toxic whereas natural gas has 0 (zero) particulate emissions (natural gas, or methane, is simply CH4). Anyone who doubts the hazards of burning coal for electricity simply needs to Google “Kingston coal spill” and read about one of the worst environmental disasters in the history of the US. This didn’t happen in the 1960’s or 70s, this happened in December of last year. “Clean coal”?

Pah-leeeeze. I thought Obama would be a bigger man than to support something like coal simply because his home state of Illinois is a major producer of coal. Apparently this is not the case. At the same time, has anyone heard Obama even utter the words “natural gas transportation”? How can one explain such behavior and policy?

I still cannot fathom why oil company executives have not come out in strong support for natural gas transportation. Not one executive of a major oil company has publicly and strongly supported Boone Pickens’ efforts for robust natural gas transportation policies. However, it’s not because they aren’t aware or don’t acknowledge peak oil. At last year’s World Economic Forum in Davos, ConocoPhillips CEO Jim Mulva said that worldwide oil demand will quite likely outstrip worldwide oil supply by 2015. Executives at Royal Dutch Shell and Amerada Hess have made similar statements. ConocoPhillip’s is one of the top 3 producers of US natural gas, so why hasn’t Mulva come out and fully embraced US natural gas transportation policies? Following COP’s purchase of Burlington Resources and its huge US natural gas reserves, and considering that huge shale supplies combined with an economic contraction have pushed natural gas prices below $4 on the NYMEX, how can one explain Mulva’s silence on natural gas transportation policies?

Meanwhile, Conoco and BP are apparently going full steam ahead with the Denali natural gas pipeline to bring Alaskan natural gas to the lower-48. Wouldn’t it seem logical that COP and BP executives would be pounding the table to support natural gas transportation in the US in order to insure demand and price support for their investments and their product? Yes, of course these companies have large investments in oil exploration and gasoline refining, however, if they really believe worldwide oil supply won’t keep up with worldwide oil demand by 2015, they surely must understand the dire economic and social implications for the US, a country which uses 25% of world’s oil supply and imports 65% of it.

I mean, seriously, these men may well put profits ahead of country, but don’t these oil executives have children and friends living in the US? Do they have enough money to protect themselves in fortress behind barbed wire and security systems? What if they just want to go out and buy a pizza? Or, do they simply have an “escape plan” when the peak oil crisis sinks the US into chaos? If so, someone please tell me - where do they plan to move? Is it rational to think that the US with its huge military machine will go quietly into the night as we run out of oil to fuel our economy and our social institutions?

As I wrote in my last SeekingAlpha article, HR 1835 – The NAT GAS Act of 2009, was introduced on the floor of the House last week. It is exactly what the US needs in order to strategically counter Chinese moves to lock up worldwide oil supplies. This is a bipartisan bill and no, its not just Oklahomans and Texans! There are representatives from Colorado, Georgia, California, New York, Idaho, Hawaii and Florida (among other states) supporting and co-sponsoring this bill. Don’t wait for energy executives, Obama, auto manufacturers, or natural gas utility executives to place ads on TV supporting this bill – although they should be! Write a letter to Obama - demand that he not only support HR 1835, but accelerate its passage through committee to his signing it into law. You might also advise Obama to stop his idiotic support for “clean coal”.

The US’s 2.1 million mile natural gas pipeline grid is our country’s most strategic weapon in the war on peak oil and foreign oil imports. The grid is connected to every major metropolitan area and to 63,000,000 homes where over 100,000,000 cars and trucks could be refueled every night while their owners sleep. It can easily be supplied with America’s most abundant, clean, and cheap fuel: natural gas. The US is bankrupt, so we can’t go around the world purchasing oil reserves like China is doing. So, we have a choice – we can either:

sink into to economic ruin or

solve our energy crisis using the only US fuel that is abundant, cheap and clean: natural gas

If energy executives are correct that worldwide oil supply won’t meet worldwide oil demand by 2015, we have no time to waste. I have worked very hard over the past 5 years or so on developing my own energy policy. I tried (in vain) to get mainstream US financial media to publish it. Despite the fact that I started this years ago when oil was about the same price it is today before moving to $145/barrel, and despite the wealth destruction of Americans invested in US equities, and despite the economic turmoil we find ourselves in today, not one financial media outlet (WSJ, Barron’s, Business Week, etc) published this energy policy. Sometimes I get the feeling there is a concerted effort by American policymakers, politicians, and media to bring the US middle class to its knees. They are succeeding.

The International Energy Agency expects global oil demand to decline by 2.4 million barrels a day this year, about the same amount that Iraq produces, as the economic slump reduces consumption to the lowest since 2004. The adviser to 28 nations cut its 2009 forecast for an eighth consecutive month, slashing last month’s estimate by 1 million barrels a day, or 1.2 percent, to 83.4 million barrels a day. The IEA also said oil supply from outside the Organization of Petroleum Exporting Countries will drop this year. "The pace of contraction is close to early 1980s levels, with a growing consensus that economic and oil demand recovery will be deferred to 2010," the Paris-based adviser said in a monthly report today.

Demand will shrink by 2.8 percent this year as worldwide gross domestic product shrinks by 1.4 percent, according to the IEA, which until now had assumed the global economy would expand in 2009. The decline outpaces supply from OPEC’s third-largest producer, Iraq, which last month pumped 2.27 million barrels a day. The outlook "implicitly discards" the agency’s earlier view that industrial activity, and demand for fuels, would recover in the second half of the year. Consumption during the first three months of this year was revised lower by 700,000 barrels a day. The collapse in demand will be concentrated in the world’s most developed nations, the Organization for Economic Cooperation and Development, where an "unusually severe recession" will curb consumption by 4.9 percent this year.

As a result, crude inventories in these nations are at their highest since 1993, the IEA said. Stockpiles were equivalent to 61.6 days of consumption as of February. In December, OPEC ministers had expressed concern that a level of about 57 days was too high. Non-OPEC supply will fall by 300,000 barrels a day this year, a second annual decline, to 50.3 million barrels a day. This is "largely because of adjustments on the biofuels side," David Fyfe, head of the IEA’s oil industry and markets division, said in a phone interview from Paris. That forecast is 320,000 barrels a day lower than last month’s, when the IEA expected non-OPEC output to be unchanged year-on-year. Supplies from outside OPEC may be curtailed by a further 360,000 barrels a day by the end of next year because of spending cuts in North America, the North Sea and Russia.

Over the next five years global supplies will be "severely constrained by today’s lower prices and lower investment," the report said. Spending on new production will likely be constrained by around 20 percent this year. OPEC, which supplies about 40 percent of the world’s oil, is still in the process of implementing reductions agreed last year totaling 4.2 million barrels a day. The 11 OPEC nations bound by production quotas pumped 25.57 million barrels of crude oil a day last month, the IEA said, compared with their official Jan. 1 limit of 24.845 million a day. That implies the group has collectively completed 83 percent of its promised reduction, the IEA said. Saudi Arabia’s compliance was highest, at 108 percent, while Iran and Angola were lowest at 44 percent and 45 percent respectively, according to IEA calculations.

All 12 members, including Iraq, will need to provide about 28.2 million barrels of crude a day this year to balance global supply and demand, the IEA report showed. That’s a reduction of 700,000 barrels a day from last month’s assessment, driven by plummeting fuel use in developed economies. Those same 12 OPEC members pumped 27.8 million barrels a day in March, 235,000 barrels a day fewer than the previous month, according to the IEA. Crude output in Saudi Arabia, OPEC’s biggest producer, was unchanged in March at 7.95 million barrels a day, the IEA said. "In response to weaker demand Saudi Aramco cut the May price for its flagship Arab Light to all regions for the first time in five months," the IEA report said, referring to prices announced by the Saudi state-run oil company on April 5.

Frank Eddy pulled off his dusty boots and slid into a chair, taking his place at the dining room table where most of the critical family issues are hashed out. Spreading hands as dry and cracked as the orchards he tends, the stout man his mates call Tank explained what damage a decade of drought has done . "Suicide is high. Depression is huge. Families are breaking up. It's devastation," he said, shaking his head. "I've got a neighbor in terrible trouble. Found him in the paddock, sitting in his [truck], crying his eyes out. Grown men -- big, strong grown men. We're holding on by the skin of our teeth. It's desperate times." A result of climate change? "You'd have to have your head in the bloody sand to think otherwise," Eddy said.

They call Australia the Lucky Country, with good reason. Generations of hardy castoffs tamed the world's driest inhabited continent, created a robust economy and cultivated an image of irresistibly resilient people who can't be held down. Australia exports itself as a place of captivating landscapes, brilliant sunshine, glittering beaches and an enviable lifestyle. Look again. Climate scientists say Australia -- beset by prolonged drought and deadly bush fires in the south, monsoon flooding and mosquito-borne fevers in the north, widespread wildlife decline, economic collapse in agriculture and killer heat waves -- epitomizes the "accelerated climate crisis" that global warming models have forecast. With few skeptics among them, Australians appear to be coming to an awakening: Adapt to a rapidly shifting climate, and soon. Scientists here warn that the experience of this island continent is an early cautionary tale for the rest of the world.

"Australia is the harbinger of change," said paleontologist Tim Flannery, Australia's most vocal climate change prophet. "The problems for us are going to be greater. The cost to Australia from climate change is going to be greater than for any developed country. We are already starting to see it. It's tearing apart the life-support system that gives us this world." Many here believe Australia already has a death toll directly connected to climate change: the 173 people who died in February during the nation's worst-ever wildfires, and 200 more who died from heat the week before. A three-person royal commission has convened to decide, among other things, whether global warming contributed to massive bush fires that destroyed entire towns and killed a quarter of Victoria state's koalas, kangaroos, birds and other wildlife.

The commission's proceedings mark the first time anywhere that climate change could be put on trial. And it will take place in a nation that still gets 80% of its energy from burning coal, the globe's largest single source of greenhouse gases. The commission's findings aren't due until August, but veteran firefighters, scientists and residents believe the case has already been made. Even before the flames, 200 Melbourne residents died in a heat wave that buckled the steel skeleton on a newly constructed 400-foot Ferris wheel and warped train tracks like spaghetti. Cities experienced four days of temperatures at 110 degrees or higher with little humidity, and 100-mph winds. In areas where fires hit, temperatures reached 120. On the hottest day, more than 4,000 gray-headed flying foxes dropped dead out of trees in one Melbourne park.

"Something is happening in Australia," firefighter Dan Condon of the Melbourne Metropolitan Fire Brigade wrote in an open letter. "Global warming is no longer some future event that we don't have to worry about for decades. What we have seen in the past two weeks moves Australia's exposure to global warming to emergency status." The possibility that a high-profile royal commission may find a nexus between climate change and the loss of human life is significant for many scientists here. "That will be an important moment in its own right," said Chris Cocklin, a climate change researcher at James Cook University in Townsville, in Queensland state, and lead author on the latest report from the Intergovernmental Panel on Climate Change. "It may mean that climate change will be brought to the fore in a way that has never happened before."

Australia's climate change predicament is on depressing display in the Murray-Darling Basin, where the country's three largest rivers converge, and where Eddy runs a shrinking 100-acre orchard. The rivers -- the Murray, Darling and Murrumbidgee -- flow from the western slopes of the Great Dividing Range and nourish the valleys of Australia's fruit and grain basket, as well as a diverse system of wetlands, grasslands and eucalyptus forests. Like scenes from a modern Dust Bowl, mile after mile of desiccated fields lie fallow, rows of shriveled trees that once bore peaches and pears are now abandoned orchards, and small businesses are shuttered, fronted by for-sale signs. The dingy brown of the landscape rearranges in a cloud of dust with every hot wind that blows. Farmers who once grew 60% of the nation's produce are walking off their land or selling their water rights to the state and federal government. With rainfall in the region at lower than 50% of average for more than a decade, Australia is witnessing the collapse of its agricultural sector and the nation's ability to feed itself.

In rural Victoria, one rancher or farmer a week takes his own life. Public health officials say hanging is the preferred method. "Fourteen dairy farmers in the valley have committed suicide in the last five years," Eddy said matter-of-factly, staring at his hands at his long, wooden dining room table. "Hangings, they are common but they are not made public. It's really depressing, it's really tough going. "Fruit growers are abandoning their orchards. It's their life's work, and it's gone to dust. They are at their wits' end. The small growers haven't got the money to replant. Haven't got the time to wait five years for a return. The machinery they have is not salable. They have thrown their arms up and walked away. They are broken people." Those who remain continue bulldozing apple and peach trees too stressed to produce marketable fruit. Each fall, orchard owners burn the trees in a massive bonfire, forlornly "toasting" their failed crops with cans of beer. More than 20% of the fruit trees in the Goulburn Valley have been pulled up in recent years. Few new trees take their place.

Local dairy farmers live a similar definition of unsustainability, concluding they can make more money selling their water to cities than they can selling milk. "That's what got us through last year," said Di Davies, Eddy's neighbor. "We parked our cows and sold our water." Santo Varapodio, 73, is the patriarch of a family that runs one of the largest fruit operations around the nearby agricultural center of Shepparton. The area's annual rainfall used to be 19 to 21 inches a year. "Now we're lucky if we get 6 to 7 inches," Varapodio said, displaying the stunted pears picked from under-watered trees. He said this summer's heat wave "cooked" his fruit. "When we bring the pears in, about 15% will have burn on them," Varapodio said. "The apples will have anything up to 50% sunburn on them." Rainfall patterns have been frustratingly uncooperative. Gentle winter showers that replenished groundwater have been replaced by torrential summer onslaughts that turn the fertile topsoil into a slough.

Most of the country is in the grip of the worst drought in more than a century. Every capital in Australia's eight states and territories is operating under considerable water restrictions. In urban areas, "bucketing" has become a common practice -- placing pails in showers and using the gray water on lawns or gardens. In some cities, such as Brisbane, residents drink recycled water, a process nicknamed "toilet to tap." In rural areas, the lucky tap their own wells, provided they still function. Others survive on rainwater or what they can scrounge or buy. Meanwhile, the tropical north's rainy season, known as the Big Wet, is longer and wetter than ever. Warming tropical waters in the Coral Sea and the Gulf of Carpentaria spawn ever more powerful cyclones, while rainfall and heat records are broken every year.

The coastal city of Darwin, in the Northern Territory, swelters through 20 to 30 days of temperatures above 95 degrees, with high tropical humidity. Government scientists project that by 2070, Darwin will experience such conditions as many as 300 days a year. Communities on the Cape York Peninsula accustomed to being flooded for days are commonly cut off for weeks. Throughout February, the Queensland government airdropped supplies to citizens, who had to wait to reemerge when the water recedes in the Southern Hemisphere's autumn, in late March or early April. In the meantime, in-ground burials are on hold. Climate change researcher Cocklin lives in the far north, where the new regime of intensified monsoons scarcely gives Queenslanders a break. "You might get punched and get up again," he said. "The second time it's harder to get up. The third time, you can't be bothered. How many times can you get punched?"

Australians in the south would see water as heaven-sent; in the north, it's a curse. In March, a young girl playing by a rain-swollen river was carried off by a crocodile, the second child lost to crocs in a month. The region is beset with twin epidemics of malaria and a dangerous form of hemorrhagic dengue fever, from mosquitoes that breed in the standing water. Such diseases are expected to become more common in the tropics with climate change. Not far from where Cocklin lives, the north's two largest tourism draws, the Great Barrier Reef and the Tropical Rainforest Reserve, are withering under climate extremes. Higher ocean temperatures are bleaching expanses of coral and affecting fish and plant species. A report issued last year by the Intergovernmental Panel on Climate Change projected that the Great Barrier Reef will be "functionally extinct" by 2050.

Cocklin was just back from giving a presentation at a climate change conference in Europe, showing the degradation of the reef as well as photographs of the bush fires and floods. "The audience was a little bit in awe of what's going on in Australia," he said. Inland, tropical forests are retreating up mountainsides as species of towering trees die off at lower altitudes and reestablish themselves in cooler climes. Rare and unique animals are on the move, competing for scant space atop Australia's modest topography. In most areas, the vertical distance from the tree line to a mountain's peak is less than a quarter-mile. "If you are at the top of the mountain, it will only take a couple of degrees to push you off the top," said Stephen Williams, director of the Center for Tropical Biodiversity and Climate Change in Townsville. Scientists paint a bleak picture of wildlife competing for space on peaks in the country's alpine region. Williams and other biologists predict as much as 50% animal extinction in the region by the end of the century.

Chief among the candidates for extinction is the rare white lemuroid ringtail possum, a singular species that Flannery, the paleontologist, describes as "our panda." The pale creatures live high in trees in the 4,000 square miles of moist forest in northeast Queensland. They can't tolerate, even for hours, temperatures above 86 degrees. Williams' research found that the possum was gone in one of the animal's two historical ranges, and in the other it "has declined dramatically, to the point where you can barely detect it." Williams said that when he shares his research illustrating the degree to which the continent's biodiversity is at risk, "people's jaws drop." Scientists are frustrated that such dramatic anecdotal and empirical evidence hasn't sparked equally dramatic action from Australia's government. They suspect the inaction can be partly explained by examining the nation's relationship with coal. Australia is the world's largest exporter of coal and relies on it for 80% of its electricity. That helps make Australia and its 21 million people the world's highest per-capita producers of greenhouse gases in the industrialized world.

Climate change researcher Cocklin, who is deputy vice chancellor at James Cook University, said the power of the coal companies and the massive receipts they bring in render the industry politically untouchable. "The nature of our energy profile is one where coal features significantly," he said. "There's no denying it's a massive problem. I don't think in the public-political arena it is being challenged with the tenacity that you would want. No Labor [Party] government is going to challenge that." Prime Minister Kevin Rudd says climate change is high on his agenda, but many here are disappointed by his pledge to cut overall greenhouse gas emissions by only 5% by 2020. Scientists and policymakers now agree that even drastic cuts won't halt climate changes already underway. In response, some Australians are considering whether outback settlements should be abandoned.

"We are already very flat and very dry as a continent," Flannery said. "There is just this little margin that is inhabitable. We don't have a lot of options." Most Australians live on the coast, where they are vulnerable to flooding because of rising sea levels, projected to increase by 6 1/2 feet this century. "Some places are pretty close to being bloody unlivable anymore," Cocklin said. "When you start talking about places where 45 degrees [113 Fahrenheit] is commonplace, that raises the question of

63 comments:

“The FDIC has effectively been hijacked by Wall Street to protect banks, shoving the FDIC's original mission -- to protect depositors -- a notch or 2 down the financial food chain.

Naturally, the FDIC "projects no losses" on these loans, as Sorkin reported in his original article. Because if they did, they wouldn't be able to insure them in the first place.

So what happens if, for some unexpected reason, the loans do show some losses? Good question. And if you think about it for a moment, you can begin to see precisely why the FDIC is being used in this way: Congress won't authorize $1 trillion dollars in loan guarantees to finance the PPIP, because that would be a direct ripoff, and people would get upset. Seats would be lost.

But, if the FDIC guarantees the loans, and makes a mistake, well... We have to save the FDIC - they guarantee all our deposits.

It's a beautiful scheme. Indeed, in the most perverse way imaginable, it's the kind of scheme Americans can be proud of. “Five Things: A Beautiful Scheme Kevin Depew

"The US under Obama is just as much of a hologram, as Joe Bageant calls it, as it was under W.. Any differences are superficial and essentially meaningless.

Eleven weeks and no change."

Right on!!!

We won't see any significant change in the coming days either. Both Republicans and Democrats serve the same wicked master. Their hands are tainted with the blood of the innocent.

Obama deceives and manipulates the masses with his eloquent words. Today I even heard a local peace activist (former peace activist, as far as I'm concerned) support Obama's war on Afghanistan. So sad ...

Thank you for posting that article on how climate change is impacting Australia. It is truly alarming. It makes the financial crisis - painful though it is - seem so small compared with the disruptions and destructions that are coming down the road as climate change and resource depletion get into full swing. Human culture in the 22nd century, provided there are any of us left, is going to be very different on the other side of all this suffering. I hope we will become more mature in our relations with each other and the earth, and not more barbaric.

I went over to the daily kos and I saw the daily poll with the 68% approval rating for Obama.

There's a lot of articles in there talking about Glenn Beck and his rantings and ravings. Now I haven't seen much of Beck except for a few clips on youtube. So I googled him and this article from the Times came up,

http://www.time.com/time/arts/article/0,8599,1890174,00.html

Glenn Beck: The Fears of a Clown

"Fear of what? Take your pick. Fear that the U.S. is on a long march to fascism. (As evidence, Beck cited — on April Fools' Day but apparently seriously — the inclusion of fasces on the Mercury dime in 1916.) That fat cats and bureaucratic "bloodsuckers" are plundering your future. That Mexico will collapse and chaos will pour over the border. That America believes too little in God and too much in global warming. That "they" — Big Government, Big Business, Big Media — are against you. Above all, that you, small-town, small-business America — Palinville — have been forgotten. Dismissed. Laughed at. Just like him. (See the top 10 TV feuds.)"

Apart from his views on God and Climate Change everything he says is pretty true.

"Then again, he recently devoted a "War Room" episode to gaming out an American economic collapse in 2014 — the result of debt and high taxes — including the rise of "Mad Max" militias and civil unrest. Because if anything spells laff riot, it's the breakdown of lawful society! Whether Beck is stirring up frightening social currents or just playing in them, his material and its resonance are deadly serious."

It seems that people are in deep denial, Beck doesn't seem to be too far off. High taxes and debt are nooses for the global economy. Social unrest by 2010 is more likely than 2014. On the daily kos they mostly simply dismiss him as a "crazy man". The denial runs deep. The herd is in love with Obama and democrats being in charge again.

To anticipate discontinuity is difficult, the majority of people believe that political and economic stability are a given in the West. Could they be more wrong? :-(

I thought this article's very good and a worthy smackdown of the lies, deception, fraud and statistical boondoggles we seem to be witnessing on an hourly basis.

Trading and Living in a Cesspool of Lies (http://www.financialsense.com/fsu/editorials/dorn/2009/0409.html)

These 3 paragraphs/quotes stuck out for me

1) "What seems to spook people now is the possibility that everybody in charge of everything is a fraud or a crook. Legitimacy has left the system…James Howard Kuntsler, Legitimacy Dwindles

There is a contagious epidemic of lies spreading all over the world, and it starts with rot at the highest levels of government. We are drowning in a cesspool of lies."

2) "One lie leads to another and another until there is no way to distinguish the truth from the lie. Lying wears people out. Lying causes stress and stress kills. Lying puts people into a prison cell of their own making. There is no freedom, rather more and more need to keep boxing themselves further into the corner of their lying brain box. I assure you that once you have been “played” by a compulsive liar, you will never be the same person. If you want to feel the depths of total frustration and absolute crazy-making, then get intimately involved with a big time liar."

3) "One of the saddest lessons of history is this: If we've been bamboozled long enough, we tend to reject any evidence of the bamboozle. The bamboozle has captured us. Once you give a charlatan power over you, you almost never get it back…Carl Sagan"

"How Many Democrats Will Stand Up to Obama's Bloated Military Budget and $75 Billion More in War Spending?Obama wants billions more for the Iraq/Afghanistan wars on top of a US military budget that already surpasses Bush-era spending by $21 billion. Where is the resistance?"

All my buds were big Obama supporters. I supported Kucinich, and when his campaign folded, I sent Nader a couple of Franklins. My friends gave me loads of flack. My closest friend, an Italian citizen, said that not supporting Obama was the same as supporting MvCain. He was outraged. To which I replied, "The smallest turd in the bowl is no choice." As a plumber, that carries some weight.

My comment to them for the last three months is, "Are you gonna believe Obama or your lying eyes." Ironically, the faith that the lowest brows of the progressive movement has in this Trojan Horse will result in the final rape of our treasury. The most patriotic thing an American can do today is to undermine Obama's credibility in the vain hope that he will not be able to continue Bush's policies of turning us all into debt slaves.

But it is no doubt hopeless. Even when Anon 3:11 PM is living under an overpass in February, s/he will be singing Obama's praises and saying it's all because of the occasional four letter word on Debt Rattle. S/he has been reading here for 9 months now.. You are right anon 3:11 - time to move on. The child was stillborn. Time to tune into a CNN analysis. Or perhaps a Judith Miller piece - that's the ticket.

Well El Galinazo, you and some of the other doomers have finally convinced me not to care. Don't worry, I am sure it will further your cause to keep up the carping.

I am someone who, along with my family, marched to protest the US invasion of Iraq before the invasion and nearly every opportunity since. I have publically called for the impeachment of those who abused their power. I have voted for Ralph Nader and against every incumbent on my ballots.

I have studied to learn the implications of the financial crisis so that I could better understand the issues and how best to effectively deal with them, with my eyes open and armed with knowledge. I have also studied peak oil, climate change and other important issues that this group believes are so important to the global financial crisis.

However, I am but a poor, indebted and undereducated individual with little influence outside of my own immediate circle of family and friends and few resources at my disposal.

But today, you have all opened my eyes. You all perceive the situation as hopeless and truly, truly doomed. I had believed up until today that you were merely trying to exert pressure and raise awareness on issues. But, I think not. I think you are merely sounding off.

"Bernanke....would need to create twenty times as much [government created money] (and give it to the debtors to cancel their debts, rather than to the banks in a futile attempt to maintain their facade of solvency) before there would be any chance of a monetary stimulus working"

Here is a snippet from the official history of the crackup, as seen from the Treasury. You might want to read the entire thing, if your of a mind to read official history. However the first paragraph says much.

"Secretary Paulson on his arrival in summer 2006 told Treasury staff that it was time toprepare for a financial system challenge. As he put it, credit market conditions had beenso easy for so long that many market participants were not prepared for a financial shockwith systemic implications. His frame of reference was the market dislocations that hadtaken place in 1998 with the Russia and LTCM crises."

At the very same time GS was beginning to build its portfolio of CDS's.

Now admittedly GS got hurt in all the crashes, Not as bad as others but hurt none the less, They took TARP money after all and they hate ever second of it.

I am not the least bit surprised Paulson came in the door shouting fire. What surprises me is that this is the official history. This was a mistake and I think someone should archive this story before it goes into the speakwrite machine.

A quick question: would Wells Fargo's profits have been as large if the mark-to-market policy had not been recently changed so that true losses could be hidden? The banks (who I think will be reporting their profits soon) - are their figures going to be much "better" because of the recent ruling that allows them to use more "flexible judgement" in valuing their assets?

Or does that ruling take effect later?

If it was to take effect immediately, it seems like it would make a difference in what Wells reported, but I haven't seen any writing about it. Just wondering....

An interesting snippet of speculation about how perhaps there is another plan afoot to use AIG or someone other conduit to cash in CDS's for fun, profit and destruction.

Now I am not saying the plan for the massive almost total haircut for Chrysler bond holders is the right thing, I think it is but that's just opinion open to debate. I am just saying if the Fed or the Treasury make them more near whole by forcing a bankruptcy it really stinks.

The story is rather sketchy, and from a political site, Firedog Lake.

still a story to keep in the back of your mind.----------------- Some senior lenders believe they would get more than 70 cents for each dollar of their secured loans if Chrysler is broken up and sold, said people familiar with the talks. Other lenders don't have an exact number nailed down and are awaiting detailed figures from the auto maker on its assets.

All of the 40-plus lenders and investors are nonetheless incensed by the last Treasury offer: that they accept about 15 cents per dollar of face value of their loans, or roughly $1 billion of the $6.9 billion owed them.

[snip]

But some of the senior secured lenders think that is a low-ball estimate and say recoveries could reach 70 cents on the dollar in liquidation, said another person familiar with the talks.

Gosh. Cerberus has been trying for two years to sell Chrysler, much of that time before the crash drove down the value of Chrysler and wiped out the ability of many potential buyers to do so. Yet these banksters think they're going to get $4.75 billion off Chrysler's remains now that the market is really abysmal?

Who knew Chrysler has secretly been a shiny pony all this time?

Or perhaps the creditors are using the 70 cent number for a different reason, and not just to drive an equally hard bargain in response to the Administration. Perhaps that's what at least some of the creditors know they'll get in bankruptcy, once you take what they'll get to sell Chrysler's pieces parts and get the payoffs of the credit default swaps and other hedges they've got on Chrysler.

“What will happen when the climate starts to change and the rivers dry up and a whole way of life comes to an end? The people of the Murray-Darling Basin are finding out right now.” Australia's Dry RunNational Geographic

I try to spend 10 minutes a day imagining how Obama doing nasty with the Pigmen is all a clever political strategy. Like perhaps giving them enough rope to hang themselves so they can really be killed off once and for all.

It's a tough 10 minutes. On about Feb 1 I figured all hope was lost. They, the Pigman, possessed him for whatever reason. Still, 10 minutes of hope a day is the least an American boy can do.

Note the bankruptcy buzz surrounding GM as well. Their plan is to spin off a new company containing core (Chevrolet, Cadillac) profitable brands early on during a bankruptcy process. There are 50, maybe even 100 times their current market cap in Credit Default Swaps on GM, so a huge profit is to potentially be made on their bankruptcy.

By holding 600,000 foreclosed homes off the market,the action of the banks is is now framed as "preventing carnage." As opposed to framing the abundance of foreclosures as a potential opportunity for market affordability in the land of vanishing industry and shrinking salaries.

Australia is a faith based society. Not in the religious sense per se but in terms of economic and social doctrine. If the Govt spends a few billion here and there everything will be allright. House prices will always go up, Oz home prices relative to income are the highest in the world I reckon. There's a lot of faith there.

Then there's the faith in economic growth and prosperity - it only gets better! Technology will save the day. The faith that energy will always be cheap and boundless or that something will come up to replace the black gold.

"There are 50, maybe even 100 times their current market cap in Credit Default Swaps on GM, so a huge profit is to potentially be made on their bankruptcy."

But who are holding the losing tickets? (I am sure that AIG couldn't be involved :-) And what if they can't pay off? And how does Geithner funnel taxpayer money to the banks and hedge funds holding the winning tickets? Can the Bankstas and Obama funnel more taxpayer dollars into AIG politically? Does the near insolvent FDIC pay off the winning bets through PPIP? Inquiring minds want to know.

Seems someone wants to air Goldman Sach's dirty laundry and GS is trying to have the site shut down.

http://www.goldmansachs666.com/

I do like the sign of the beast next to their name.

"The bank has instructed Wall Street law firm Chadbourne & Parke to pursue blogger Mike Morgan, warning him in a recent cease-and-desist letter that he may face legal action if he does not close down his website."

"Seems someone wants to air Goldman Sach's dirty laundry and GS is trying to have the site shut down."

Mike has several sites that have the name Goldman Sachs in them. The letter he received from the lawyers doesn't mention content, they want him to stop using their name. He has vowed to fight them all the way through the courts.

Some really fine writing, phrases, and comments recently. In contrast to some, like Anon 3:15, I'll keep coming back. Just a thought: talking about impending crises and collapse doesn't make you a doomer, the way some perpetual optimists seem to think...

I try to spend 10 minutes a day imagining how Obama doing nasty with the Pigmen is all a clever political strategy. Like perhaps giving them enough rope to hang themselves so they can really be killed off once and for all.

I spend about 10 minutes a week. That's all the time I can spare while trying to keep my head above water.

Note to the sapient and semi-sapient persons here: TAE now has a definite "Doom Herd" dynamic going on.

"Yes! You're right! All is evil; all is corrupt!" Moo.

I actually agree with most of that, if you'll recall my "it's been this way since Downtown Babylon was two mud huts" statements.

But- just as offering False Hope is kind of an obscenity; I think there is an equal opportunity for obscene impacts for those pushing False Despair.

And the consequences are very real- people are giving up, and committing suicide at an accelerating rate.

For a newbie, reading all the stuff here recently- they could easily leave the site with the idea that everybody here expects to die.

That said; yep, we're heading into a collapse unlike any others. It's the Fundamentals, stupid. There aren't any. But I'm fully intending to come through it, and bring my family with me.

We need to include the perhaps possibility of survival in the chants. Right now, this is sounding more and more like the dodos in Ice Age "Doom on you! Doom on you!" Doesn't turn out well for the dodos.

Cheaw up, Bwian. Fings could be wuss."

Yes, I understand that conflicts with my statement. But the Pythons were always, and remain, pretty cheerful, in spite of their lucid and extensive comprehension of the idiocy, futility, and hopelessness of the situation. I think they are quite possibly the brightest philosophers working today.

I'm really not saying "lighten up". It's very dark outside. Just- less mooing, please, and the occasional glimpse of the determination to survive.

Long cold winters in the US do not disprove man made global warming, but drouth in Australia proves it? BS

Thieves are carrying the furniture out of the house and a messiah/dictator is consolidating power in Washington. Cheap oil is gone and likely all prosperity with it. My worry time will be devoted to real problems, thank you.

Greenpa, I see what you are saying. Perhaps that is why so many people think that recovery is just around the corner. For them to think anything unlike what they'd been used to, is well, beyond belief, doomed. But if prepared, things are going to be different, but not necessarily bad. But unprepared, different will be bad, for them.

Still, people say to me that they'll always be able to use their credit cards, there will always be food at the grocery, and gas at the pumps for their cars. It's really hard to convince them otherwise, because, well, that's doom for them.

We are NOT hoping for things to get difficult. We are merely warning people that they will in time for them to prepare. We are in no way cheerleading for what we predict.

The factors you describe are simply part and parcel of a sucker rally - a sucker rally that we said would happen. It should continue for some time, perhaps a few months, and in that time we should see some recovery as confidence restores some liquidity. This isn't the end of our problems though, in fact it's barely the end of the beginning. Watch out when the decline resumes. We suggest you prepare for that eventuality.

Howard Zinn on Class in America"In the United States we are really brought up to think there's only really one class. That is, the idea of class conflict, class struggle, that is foreign to American culture." says Zinn. "We're brought up to think that were part of one big happy family," according to Zinn this is simply a perpetuated lie that contradicts the reality that a large percentage of the population doesn't fit in to this happy family model.

Zinn continues acknowledging that people are starting to realize that they belong to a class based society and the implications this has. "Today the word class sort of comes as a jarring intrusion in to our complacency about "oh we're all one class" because it seems clearer now than it has been that we really do have different classes and people are becoming more aware of this." He emphasizes the massive imbalance that exists stating "we have a very very rich class of people up there at the top of the heap.. ".

It is human nature that when you accept something as true you then identify with that perceived truth (that truth becomes your identity) so that an attack on what you believe is seen as an attack on you personally. When your ego gets involved like that you begin to hope for that truth because otherwise it is you who is false. This is a spiritual pitfall. My guess is that most of the doomers here recognize this and struggle against it (I do).

This is of course also true of StatusQuoers. They identify with the current system so that any suggestion that it is going bye-bye is seen as a personal attack.

Its not going to be as comfortable as people out there are hoping for.

If we recognize this then all we have to do is stop taking the attacks personally and we avoid that pitfall.

That's what I suggested when I sent my girlfriend your salient comment in response to her having commented that I'm "depressed" in response to rational conversations about what's going on. Hope she gets it.

Personally, I always hope for the best. However, in the face of all that's wrong with the system, the societies, the paradigms, etc., etc., I really do think the deck that's stacked against us is growing - exponentially.

All I can say is don't take it personally unless you're someone who has contributed to this mess.

Trying not to take attacks personally is impossible once the identification with a belief has been made. You can at best pretend not to take them personally, but no one near you will believe it. This is true of any set of beliefs and especially those where belief in God is involved.

The key is to realize that what you believe is not who you are and that you can change your beliefs based on new evidence without losing your identity. The ego of course hates this and will fight you for that identity tooth and nail. Unquestioned identification with beliefs leads to much of the evil in the world today.

I started 19 packages of bees the last couple of days in 2 new outyards, that now gives me 47+ hives,[my bee biz is buzzing]finished "rough"tilling of near 1/2 acre of garden ,separated enought garlic to kill a thousand vampires[2 beds,2 varieties,a hot korean type and a milder redneck]and worked 4 hrs.at my now part-time job,and found my heart gladdened by nearly working myself to death the last few days..

and the wife wants to go dancing tonight....

One must always face up to the fact life still goes on,regardless of the doom that is occurring...

Boys and girls are still getting into trouble...

the price of life still increases..

and the thieves that are running things are still trying to gut the good ol'usa..and chain us with unthinkable debt.

We need to listen to [every one of us]that Argentinian fellow,who strikes me as having a very good handle on whats going on.I am hoping he is wrong about the war part...but it makes way way too much sense.If we have anything like a rally this summer...use it to make like a squirrel,as this winter will be cold cold... I have things to plant,and a garden to tend...later folks

"The key is to realize that what you believe is not who you are and that you can change your beliefs based on new evidence without losing your identity."

Exactly. You are not your thoughts. What you believe gives orders to your emotions and creativity to go out and find it. Surprise: some of those thoughts may not even be yours. I am plagued by the thought "arrested", no doubt from viewing way too many TV police dramas.

Well it looks like on very thin trading volumes, GS is controlling the market. The 2nd and 3rd tier liquidity providers seem to have backed out. The big boys seem to be playing amongst themselves at obscene levels.

From http://cobrasmarketview.blogspot.com/2009/04/net-institutional-buying-selling.html

Last Monday, Net Institutional Buying was over the 3500 level. It did NOT happen even once during the last Bear Market and only 2 times during the last Bull Market.

This is an obvious attempt to push the market higher and have everyone believe that the Bear Market is over.

BUT, trading amongst themselves at such an extreme level can not last for long. What this means is that once the big boys get out of the market in a few weeks or days, the market is going to possibly crash. The divergence between reality and fantasy is too high. The longer it carries on like this, the bigger the eventual crash and this could cause lots of headaches.

Tyler Durden writes, "large swings on low volume, massive bid-offer spreads, huge trading costs, inability to clear and numerous failed trades. When the quant deleveraging finally catches up with the market, the consequences will likely be unprecedented, with dramatic dislocations leading the market both higher and lower on record volatility."

You wrote:"The key is to realize that what you believe is not who you are and that you can change your beliefs based on new evidence without losing your identity."

Would it not be easier to believe in nothing? To look at everything as more or less plausible?

I have for years said that I do not believe anything, notably because belief strikes me as the negation of an open, active, inquiring and doubting mind. Belief is perhaps comforting, but it is certainly no fun.

Essentially, my identity is with my mind and HOW it functions, not with my preferences.

I get it. But what if mutually pretending not to take it personally is for the better good? I mean kicking the can down the road may not be a wise decision in this financial crisis, but sooner or later, either the doomer or the satusQuoer is going to be right about the consequences of their beliefs. So if civility, respect and consideration are part of the pretending then ultamently whoever is right will have the humility of being so, given the circumstances, and wouldn't make that future situation personal either.

In other words, our egos would be beter served if we agree to disagree; especially since the benefits of either position are possibly desired, i.e., being prepared for incredibly tough times, or on the other hand being healthier, happier and/or less stressed during the roller coaster of events we're currently experiencing.

I really wouldn't mind if my pessimisstic beliefs about the current and near term events were utterly squashed by a wave of good news. I would happily acquiess (sp?) and indeed have said with out hesitation that I will be the first to say when "we don't need to worry or that I was wrong. However, even that seems to be met with a blanket of suspicion, for lack of a better word.

So by all means, lets not accept becoming something we don't want to be (a doomer) is permanent or who we are, but the situation is what it is, why do we have to shout about it? We all want what's best.

Regarding how one comes to their beliefs, where do you stand if you don't mind my asking? Do you think it's better to stay informed, despite all the negativity, or ignore the obvious in an attempt to maintain the satus quo?

Fear is bad, according to conventional wisdom. Our economy is in trouble, we hear, because banks are too afraid to lend and consumers and companies too afraid to spend. Less lending and spending further depresses the economy, which begets more fear. And to top it all off, some analysts irresponsibly exploit these fears for their own ends, by arguing that the crisis may get far worse before it gets better, and in the process sensationalize and exaggerate the problem.

But, in this case, conventional wisdom is wrong. The truth is that fear is good. The economic crisis we're facing is not at root the result of too much fear but of too little. If we had been more afraid for our economic well-being, we would have saved more, borrowed and speculated less, and been more cautious about letting financial wizards make bets with our money using opaque mathematical models.